Escalating geopolitical tensions have propelled domestic crude oil prices sharply higher, with the SC crude futures contract reaching an intraday peak of 910 yuan per barrel on September 14, marking the highest level since its debut on March 26, 2018. Initial estimates suggest a premium of approximately $25 per barrel over Brent at the same time. So why is SC demonstrating such remarkable strength?

Understanding the pricing divergence is crucial. The Strait of Hormuz disruption primarily impacts the Asia-Pacific region, and since SC represents the cost-insurance-freight (CIF) price for the Asia-Pacific consuming area, it naturally bears the brunt of the impact. The supply shortage has also expanded dramatically: Saudi Arabia's East-West Pipeline was shut down preventively following a drone attack, enlarging the market deficit from roughly 4 million barrels per day to an estimated 7-8 million barrels per day. Furthermore, freight rates for shipping Middle Eastern and North Sea crude to China have surged 9-10 times higher, from averages of 2.4 and 4.8 dollars per barrel to 28.3 and 50.2 dollars per barrel respectively, significantly inflating the landed cost for consumers.

Different Crude Futures Reflect Regional Fundamentals

The four major globally liquid crude oil futures, listed chronologically by launch date, include CME's WTI, ICE's Brent, DME's Oman, and INE's SC. WTI reflects North American fundamentals, Brent represents European conditions, Oman mirrors Middle East dynamics, while SC captures the fundamentals of the Asia-Pacific consumption zone, particularly China. On a pricing basis, WTI, Brent, and Oman reflect free-on-board (FOB) costs, whereas SC reflects the CIF cost to the importing region. Given that threats of disruption at the Strait of Hormuz primarily affect Asia-Pacific supply routes, SC crude has naturally outperformed its international counterparts.

Rapid Expansion of Supply Shortage Following Pipeline Suspension

The US-Iran conflict that began in March has effectively closed the Strait of Hormuz, impacting exports of crude and refined products from key Middle Eastern nations. Only Saudi Arabia and the UAE possess pipeline infrastructure capable of bypassing the strait. Saudi Arabia's East-West Pipeline has a designed capacity of approximately 7 million barrels per day, with an estimated transfer capability of around 5 million barrels per day. Around September 11, Saudi Arabia announced the preventive shutdown of this pipeline following drone attacks. Based on shipping data calculations through end-August, the crude market was already facing a deficit of approximately 4 million barrels per day before the closure. The pipeline shutdown has now rapidly expanded that supply shortfall to an estimated 7-8 million barrels per day.

Soaring Freight Costs Drive Up Landed Prices

The prolonged half-year conflict has also significantly disrupted the tanker market. Freight rate tracking reveals that shipping costs from the Middle East and North Sea to China currently stand at approximately 28.3 and 50.2 dollars per barrel respectively, compared to 2025 annual averages of roughly 2.4 and 4.8 dollars per barrel. This represents an astonishing 9-10 fold increase in freight rates, which substantially elevates the landed cost of crude oil for consuming regions and pushes up the premium embedded in SC pricing.

Final Thoughts on Risk Management

In summary, geopolitical volatility remains the dominant driver influencing current oil prices, and such factors carry considerable uncertainty. With market risk and price fluctuation intensifying, oil price volatility may continue to rise further. Traders must exercise strict risk control and approach participation with extreme caution.