Morning Highlights: Brent at $107 as Ceasefire on Life Support; OPEC Output at Two-Decade Low, Aramco CEO Warns Recovery Could Slip to 2027, China Teapots Cutting Runs

Tuesday, May 12, 2026

Brent (July) $107.23 | WTI (June) $101.14 Brent +3.02 (+2.9%), WTI +3.07 (+3.1%), extending Monday's 2.8% gains. Hormuz traffic at two to five vessels daily versus roughly 70 in normal times. Trump says ceasefire on life support; OPEC April output at lowest in more than two decades; Aramco CEO warns market recovery could drag into 2027; U.S. sanctions nine companies and three individuals for facilitating Iranian oil shipments to China; Trump-Xi summit Thursday-Friday.

Bottom Line

Trump calling the ceasefire "on life support" is the most honest public characterization of the diplomatic situation since the war began, and the market is repricing accordingly. The listed points of disagreement - cessation of hostilities on all fronts, removal of the U.S. naval blockade, resumption of Iranian oil sales, compensation for war damage and Iranian sovereignty over Hormuz are not minor technical issues to be resolved in a final drafting session. They are the core of the conflict. Iran asserting sovereignty over the strait is particularly significant: it is a territorial and legal claim that the U.S., the UK, the EU and the international maritime community have never accepted and cannot accept as part of any peace framework without fundamentally altering the legal status of a waterway that underpins global trade.

Amin Nasser's analyst call commentary is the most important supply-side assessment of the week. The market is losing 100 million barrels per week. Two to five vessels are crossing the strait daily versus 70 in normal times. Recovery could drag into 2027 if the situation continues until mid-June. Even if the strait reopened today it would take months to rebalance. These are not hedged analyst estimates -- they are operational assessments from the CEO of the world's largest oil exporter who has direct visibility into every barrel moving through the system. His distinction between "demand destruction" and "demand rationing" is analytically important: rationed demand returns quickly once supply is restored, destroyed demand does not. That framing supports his prediction of a very robust demand rebound once normalization begins, which is the bull case for prices staying elevated well into the recovery phase.

The OPEC April output survey showing the lowest production in more than two decades is the supply destruction number that contextualizes everything else. DBS Bank's Suvro Sarkar identified the critical deadline: if no deal by end of May, upside price risks are firmly on the table. With the ceasefire described as on life support and the MOU gap table showing far-apart positions on every substantive issue, end of May is an optimistic assumption for resolution.

The U.S. sanctioning nine companies and three individuals for facilitating Iranian oil shipments to China, timed immediately before the Trump-Xi summit, is a deliberate pressure signal. Washington is telling Beijing that Chinese entities enabling Iranian crude flows will face consequences while simultaneously asking Xi to use his leverage with Tehran to reopen Hormuz. The tariff backdrop -- Chinese imports of U.S. oil and LNG effectively halted by trade war tariffs -- gives both sides something to trade at the summit. A package that includes resumed Chinese purchases of U.S. energy in exchange for Beijing applying pressure on Iran's Hormuz position is the deal structure that has the most economic logic for both parties, though China's willingness to deliver on Tehran is unproven.

China's teapot refiners cutting runs to roughly 50% of capacity despite Beijing's directive not to do so below two-year averages is a demand destruction signal that will eventually appear in global crude demand figures. Refiners losing 500 to 600 yuan per ton processed cannot be ordered to keep running indefinitely without creating insolvencies. Beijing approving or rejecting the run-cut requests will be the next data point to watch on Chinese demand.

Top Developments

Trump: Ceasefire on Life Support, Core Demands Irreconcilable

Trump said Monday the ceasefire with Iran is "on life support," citing unresolved disagreements on cessation of hostilities across all fronts, removal of the U.S. naval blockade, resumption of Iranian oil sales, war damage compensation and Iranian sovereignty claims over the Strait of Hormuz. Iran's assertion of sovereignty over the strait is a fundamental legal and geopolitical claim that no U.S. or international framework can accept without redefining the waterway's status under international maritime law. DBS Bank's Suvro Sarkar warned that if no deal materializes by end of May, upside price risks are firmly on the table.

Aramco CEO: 100 Million Barrels Lost Per Week, Recovery May Slip to 2027

Amin Nasser told analysts Monday the market is losing approximately 100 million barrels of oil per week, with only two to five vessels transiting Hormuz daily against a pre-war norm of roughly 70. Recovery could drag into 2027 if disruptions continue until mid-June. Even an immediate reopening would require months for the market to rebalance given the cumulative supply hole of approximately 1 billion barrels. Nasser described current conditions as demand rationing rather than demand destruction, predicting a very robust demand rebound once normalization begins. Aramco is sustaining 60 to 70% of crude export volumes via the East-West Pipeline to Yanbu and is exploring ways to expand Yanbu's 5 million bpd export capacity. SAMREF is fully operational, Ras Tanura has been restored with some units in turnaround, and SATORP is partially on stream with full restoration underway.

OPEC April Output at Lowest in More Than Two Decades

A Reuters survey showed OPEC oil output in April fell to its lowest level in more than 20 years as the effective Hormuz closure curtailed exports from Saudi Arabia, the UAE, Kuwait and Iraq. The survey underscores the scale of supply destruction that has accumulated over 10-plus weeks of conflict. Macquarie's Walt Chancellor noted U.S. crude stocks are expected to draw approximately 1.7 million barrels last week against a backdrop of continued strong net waterborne export flows for crude and products over the coming weeks.

U.S. Sanctions Chinese Entities for Iranian Oil, Trump-Xi Summit Thursday

The U.S. imposed sanctions on nine companies and three individuals for facilitating Iranian oil shipments to China, timed immediately before Trump's Thursday-Friday summit with Xi Jinping in Beijing. The sanctions signal Washington intends to use secondary pressure on Chinese buyers as leverage heading into the summit. Trump-Xi discussions are expected to cover Iran and Hormuz alongside trade issues. A potential package linking resumed Chinese purchases of U.S. oil and LNG -- halted by trade war tariffs on roughly $8.4 billion in 2024 flows -- with Chinese diplomatic pressure on Tehran is the deal structure with the most economic logic for both parties.

China Teapots Cut Runs to 50% Despite Beijing Directive

Independent refiners in China's Shandong province have cut average operating rates to roughly 50% from 55% in April, defying Beijing's directive to maintain runs above two-year averages under threat of reduced import quotas. Refiners face estimated losses of 500 to 600 yuan per metric ton processed, with some seeking provincial government permission to lower rates or suspend operations. Beijing has not yet approved the requests. Teapots have mostly exhausted previously stockpiled discounted Iranian and Russian crude, and Russian and Iranian barrels that formerly traded at discounts to Brent are now trading at premiums, making fresh purchases margin-destructive at current run rates. Domestic fuel demand remains weak while Beijing's export curbs have created a domestic supply glut, compressing refining margins from both directions.