Oil Market: Third Session of Decline, Brent at $86, WTI at $80
Oil prices continued to fall on Wednesday for the third consecutive day: Brent dropped about 3% to $86 per barrel, while WTI fell to $80. On Tuesday, Brent closed below $89, and both benchmarks have lost 8–9% since the beginning of the week. This represents the deepest weekly correction since mid-June, when the market reacted to the first U.S.-Iran memorandum. However, compared to pre-war levels (around $71 at the end of February), Brent is still trading at a premium of about 20%.
Key Price Drivers for August 27
- Diplomacy in the Strait of Hormuz: The joint statement from Tehran and Muscat regarding the temporary corridor is perceived as a first practical step towards increasing transit after the failure of the June memorandum.
- U.S. Sanctions are Softer: Washington has not imposed secondary sanctions on Iran's trading partners, opting for a "correction period" and targeted additions to the OFAC lists.
- Signs of De-escalation: The visit of the Chief of Staff of Pakistan to Tehran, the continuation of Qatari mediation, and reports of a possible return of evacuated U.S. diplomats to the region are reducing the likelihood of new strikes.
- U.S. Inventories: According to API estimates, commercial oil inventories increased by 4.2 million barrels in the week ending August 21, against expectations of an increase between 0.6–1.9 million, adding pressure to prices.
The forecast backdrop remains mixed. The U.S. Energy Information Administration (EIA) expects the average price of Brent to be around $85 in the third quarter, with a continued decline in Middle Eastern production of about 0.6 million bpd until the end of 2027. The IEA, in its August report, estimates a global oil demand decline in 2026 of 1.6 million bpd, followed by a recovery of 2.4 million in 2027; observed global inventories fell by 69 million barrels in July, while refinery utilization remains nearly 5 million bpd below last year. Crack spreads for diesel and aviation kerosene in the Atlantic Basin remain at record levels, indicating that the physical market for oil products is significantly tighter than what Brent prices suggest.
Strait of Hormuz: Temporary Corridor Iran — Oman and Demining Project
The main news of the week came from Tehran. Following the visit of Oman's Foreign Minister Badr al-Busaidi to his Iranian counterpart Abbas Araghchi, the sides announced an agreement on a "phased framework" that could serve as a practical basis for resuming safe shipping. The document provides for:
- the establishment of a temporary joint navigation corridor through the Strait of Hormuz;
- a joint project for demining the strait;
- continued technical negotiations regarding a permanent corridor, future administration of the strait, information exchange, traffic management, and provision of navigation and security services;
- involvement of other Gulf States in the dialogue.
The Deputy Minister of Foreign Affairs of Iran, Kazem Garibabadi, clarified that the incoming route to the Persian Gulf will completely pass through Iranian waters, while the outgoing route will traverse both Iranian and Omani waters; additional negotiations will take 30–60 days. Al-Busaidi expressed hope of announcing the launch of the corridor "in the near future." Two qualifications are critical for the market. First, the U.S. continues to insist on the freedom of navigation along the southern route near Oman under the protection of the Navy, rather than Iran controlling the traffic. Second, the mention of demining contradicts recent U.S. statements that the mines have already been removed, although the American side reported the demining of the central part of the strait. Risks remain: on Tuesday, the British UKMTO reported an attack on a tanker with an unidentified projectile off the Omani coast near the entrance to the strait. Before the war, about 20 million bpd of oil and petroleum products passed through Hormuz; industry analysts estimate that the market still loses about 8 million bpd.
U.S. Sanctions: "Economic Pariah" Still Without Secondary Measures
The campaign announced by the U.S. Treasury on August 24, dubbed "Economic Pariah Operation," was presented as "economic D-Day," but its first phase has proven to be more of a warning. Sectorial definitions affect digital assets, technology, gold, aviation, and maritime transport, with about 60 legal entities, individuals, and vessels linked to Iranian oil exports added to the OFAC lists. However, secondary sanctions against partner countries have not been imposed: Minister Scott Beeson speaks of a "correction period" and individualized timelines for certain countries, refusing to name them or indicate deadlines. A decision regarding an unnamed financial institution is promised by the end of the week.
The reaction from counterparties has been telling. The UAE announced the cessation of all trade with Iran; Beijing urged Washington to "act rationally"; the head of the Central Bank of Iran stated that the new measures do not add pressure, as the country has preemptively accumulated foreign currency reserves. A key question for the oil market is whether the administration will impose sanctions against Chinese banks ahead of the anticipated visit of Xi Jinping. So far, the market is pricing in that they will not.
U.S. Inventories: SPR Approaches Operational Minimum
The API report for the week ending August 21 was a cold shower for bulls. Against the backdrop of a 4.2 million barrel increase in oil stocks, gasoline stocks decreased by 3.2 million, distillates by 0.5 million, and inventories in Cushing rose by 1 million. Over the week, the Strategic Petroleum Reserve (SPR) saw another 3.7 million barrels exit, down to 289.7 million, which is close to the widely accepted operational minimum of 250–300 million. According to the latest official EIA data, commercial oil stocks were at the five-year average, gasoline stores were 5% below average, and distillate stocks were 13% below normal. The official EIA statistics for the reporting week were released on Wednesday evening and will determine whether such a large increase is confirmed.
OPEC+: Quota Increase Paused, Review Scheduled for September 6
The September increase in quotas of 188,000 bpd concluded the reversal of voluntary cuts for 2023 totaling 1.65 million bpd. Seven countries in the alliance (Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, Oman; the UAE exited OPEC in May) will meet on September 6, with the base market scenario being a pause for the fourth quarter as preparations for negotiations on 2027 quotas are made, where Iraq is seeking a "fair share." Due to export restrictions in the Gulf, Russia, and Kazakhstan, the paper increases in quotas this year have mostly not reached the physical market, so if Hormuz opens, the alliance will have to manage a potential surplus.
Gas and LNG: TTF Retreats from €68, EU UGS at 63% Full
The European gas market remains the most vulnerable segment of the energy sector, but here, too, a breather has emerged. TTF futures fell below €67/MWh after a peak of €68.46 on Monday—the highest level since January 2023. The decline reflects hopes for de-escalation and the absence of a physical blow to supplies from the new U.S. sanctions. However, the fundamental picture has not changed:
- Inventories: EU gas storage is approximately 63% full against a seasonal norm of about 80%; the target for November 1 has been revised down from 90% to 80%, and the current injection rate allows for only around 80–81% full.
- Qatari LNG: The return to a full shipment schedule to Europe is unlikely before the beginning of the fourth quarter, considering demining timelines.
- Norway: Equinor launched the second phase of Troll Phase 3 on August 22 several months ahead of schedule, accelerating the extraction of 55 billion cubic meters; this supports exports from the field covering approximately 10% of European demand but does not add new resources.
- Asia: Spot LNG JKM remains around $21–22/MMBtu, the spread with American Henry Hub (below $3/MMBtu at record production in the U.S.) continues to justify a wave of investments in export terminals.
Electricity and Renewables: Heat, Storage, and Rising Share of Solar
The summer of 2026 confirms that the energy transition is accelerating, but grids remain under stress. In Japan, wholesale electricity prices reached their highest since 2023 amid heat and growing cooling demand. In the U.S., according to EIA, solar generation in the first half of the year increased by 21%, hydropower by 9%, and wind generated 6%, while coal generation fell by 11%; a 3% decrease in hydropower generation is expected in the second half of the year due to drought in the West. Ember records that in 2025, renewables first surpassed coal in the global balance (33.8% vs 33.0%), and battery costs fell by 45% with storage installations rising by 46% to 250 GWh. The IEA, however, reminds that coal will remain the largest single source of electricity at least until 2030, and the war in the Gulf has temporarily restored its competitiveness in Europe and Asia due to expensive gas.
Coal: Newcastle Above $131 — Three-Week High
Energy coal in Newcastle rose to $131–132 per tonne, 18% higher than last year, amid heat in Japan, signals of stimulants in China, and continued switching from gas to coal. European ARA is trading around $122/tonne, while Australian coking coal is around $236/tonne. EIA has raised its U.S. coal export forecast for 2026 to 102 million short tons. In its new five-year plan, China is betting on consolidating and "smartening" mines while tightly closing outdated capacities, which limits supply elasticity.
Russia: Diesel Export Ban Extended at Least Until End of September
According to industry sources, the Russian government intends to extend the full ban on diesel fuel exports, effective since early July and expiring on August 31, for at least until the end of September, with discussions ongoing about an extension until the end of the year. The ban on gasoline exports remains in effect until January 31, 2027, and on aviation kerosene until the end of November. Fuel shortages have returned to some regions in August after a brief respite; to saturate the market, Russia is importing petroleum products from Asia and Belarus, and Deputy Prime Minister Alexander Novak reports that several refineries are emerging from unscheduled repairs. Meanwhile, crude oil exports remain high: in July, India imported a record 2.8 million bpd of Russian oil, and the average price of Urals remained significantly above the G7 price cap of $44.10 at around $60.
What to Watch on August 27: Calendar for Energy Sector Market Participants
- The official announcement of the Iran — Oman temporary corridor and the U.S. response to the Iran-controlled incoming route scheme.
- The promised U.S. Treasury decision on a financial institution and the first "deadlines" for Iran's partner countries.
- The results of the EIA report on U.S. oil and petroleum product inventories and SPR dynamics.
- An investigation into the attack on a tanker off the coast of Oman, the position of insurers and shipowners.
- Injection into EU gas storage and holding TTF below €67/MWh.
- Signals from OPEC+ delegations ahead of the meeting on September 6.
- The Russian government's decision on the duration of the diesel export ban.
In conclusion, the oil market has received a documentary reason for a decrease in the geopolitical premium for the first time in a month; however, between the announcement of the corridor and the actual increase in transit through the Strait of Hormuz lie the tasks of demining, coordination of routes with the U.S., and 30–60 days of technical negotiations. The European gas market enters the heating season with a deficit in inventories, while coal and renewables simultaneously strengthen their positions in global electricity generation. Daily analytics on the energy market can be found in the Open Oil Market Telegram channel.
