Oil Market: Brent around $87, WTI around $82 — Week of Decline
Oil prices are correcting after a two-week rally. Brent traded near $87 per barrel on Thursday, while WTI hovered around $82. The weekly decline in Brent exceeded 7%, yet since the beginning of the year, the benchmark is still over 40% higher: the premium for geopolitical risk following the closure of the Strait of Hormuz in February has not disappeared. Current key drivers of oil prices include:
- Diplomacy on Hormuz: Statements from Tehran and Muscat regarding a temporary shipping corridor and joint demining are the main bearish factors of the week.
- Soft Sanctions: Washington refrained from imposing secondary measures against Iran's trade partners, alleviating some concerns about supply cuts.
- Physical Flows: Donald Trump stated that 10 million barrels of oil passed through the strait on Tuesday, while Kpler reported only five commercial vessels, against an average of 15 for the past ten days. This data discrepancy is keeping traders from aggressive selling.
- Russian Risk: Reports of Russia preparing an escalation in Ukraine briefly pushed the market upward on Wednesday before news from Oman brought prices down again.
- Saudi Logistics: Satellite images indicate an increase in shipments from Saudi Aramco from terminals in the Persian Gulf as Riyadh adjusts exports amid threats from Houthi forces in the Red Sea.
Analysts at MST Marquee characterize the market as being in "wait-and-see mode": following a series of failed ceasefires, investors are hesitant to respond to any de-escalation until a deal between Tehran and Washington is confirmed.
Strait of Hormuz: Iran-Oman Agreement and U.S. Position
The key event of the week for the global oil and LNG market is the progress in negotiations between Iran and Oman. On Tuesday, the foreign ministers of the two countries discussed a "preliminary framework" for resuming shipping, and on Wednesday, a representative of the IRGC announced agreements reached. The main elements include:
- Establishment of a temporary joint shipping corridor across the strait.
- Joint demining project of the waters.
- Division of the waters of the strait and revenues from transit between Iran and Oman.
- Negotiations for a permanent route within 30–60 days.
Tehran emphasizes that the agreement with Oman does not automatically mean the reopening of the strait, and the IRGC directly accuses the U.S. of prolonging the process. Both parties missed the 60-day window of the June memorandum, the formal ceasefire mechanism is closed, and now the Oman-Iran track is viewed as a prelude to a direct deal with Washington. A positive signal is the reports of the U.S. preparing to return diplomats to evacuated embassies in the Middle East. A negative signal is the tanker struck by an unknown projectile off the coast of Oman on August 25: shipping safety has not been restored, and insurance rates remain prohibitively high.
Sanctions "Economic Pariah": Impact Weaker than Market Fears
The campaign announced by U.S. Treasury Secretary Scott Bessen and dubbed "economic D-Day" appears more of a signal than a devastating blow by Thursday. The Treasury focused on Bank Melli, oil smuggling networks, and "zero leakage" of currency earnings but did not impose secondary sanctions against China, India, or Turkey. For the oil market, this means that around 340,000 bpd of Iranian exports to China remain intact for now. Inside Iran, pressure is mounting: inflation is approaching 90%, and President Masoud Pezeshkian publicly states that the country "cannot fight forever" and defends the June memorandum. This combination of economic exhaustion and diplomatic window shapes the baseline scenario for investors heading into autumn — a gradual recovery of flows through Hormuz amid continued high volatility.
U.S. Stocks: Record Low Diesel and Record Refinery Utilization
The weekly EIA report for the period ending August 21 showed a commercial oil stock increase of only 0.1 million barrels, to 428.9 million — 1% above the five-year average. U.S. refinery utilization hit 97.4% of capacity, processing 17.4 million barrels per day, while gasoline output rose to 9.8 million barrels per day, and distillates fell to 5.1 million. Crude oil imports decreased by 435,000 bpd to 6.2 million. The main signal for the petroleum products market: U.S. diesel stocks have fallen to the lowest seasonal level on record. Europe, facing a shortage of middle distillates, has purchased diesel from Mexico for the first time in seven years. For fuel companies and traders, this means record crack spreads in diesel will likely persist at least until the end of autumn.
Gas and LNG: Europe Between €65 and €100 per MWh
The gas market remains the most vulnerable segment of the global energy sector. TTF futures surged above €68/MWh on Tuesday — the highest since the beginning of 2023 — and retreated below €67 by Thursday on news from Oman. The fundamental picture remains unchanged:
- Storage: EU gas storage facilities are only about 61% full against a target level of 80% by November 1 (reduced from 90%). Wood Mackenzie estimates the "best-case scenario" at 75% with a full recovery of Qatari exports by the end of September; if the strait remains closed for another two months, it will be less than 70%.
- Price Forecasts: Goldman Sachs suggests that December TTF should exceed €100/MWh as Middle Eastern exports gradually normalize by 2027 — twice the base forecast of €50. Morningstar anticipates a range of €90–120 in case of a cold winter.
- LNG Supply: new Qatari capacities will not reach full utilization until the second half of 2027; from January 2027, the EU will enforce a ban on Russian LNG. Europe may require approximately 64 billion cubic meters of American LNG.
- Asia: spot JKM remains around $21–22/MMBtu; Japan, Korea, and Taiwan hedge risks with coal and the restart of nuclear power plants.
- U.S.: Henry Hub is below $3/MMBtu with record production of ~122.5 billion cubic feet per day; planned maintenance at Corpus Christi LNG has temporarily reduced feedstock demand.
OPEC+ and Russia: Paper Quotas and Falling Production
OPEC+ will meet on September 6 to discuss October; the baseline scenario is a pause in quota increases until the end of the year while maintaining around 2 million bpd cuts from 2022 and preparing for negotiations on quotas for 2027, where Iraq is pushing for a higher level. The actual production of the alliance is still millions of barrels below February's levels.
Russia is a vivid illustration of the gap between quotas and actual production. According to secondary sources from OPEC, production in July dropped to 8.89 million bpd — the lowest in six years and nearly 1 million below the allowable level. Refining in July fell to 3.6 million bpd, the worst level since 2002. Maritime oil exports in the four weeks ending August 23 decreased to 3.46 million bpd; strikes on Novorossiysk prompted the redirection of Kazakh barrels to the Black Sea, freeing up Ust-Luga for Russian shipments. The volume of Russian oil at sea dropped to 83 million barrels — a yearly low — while export value fell to $1.65 billion per week. China and India remain the main buyers with deliveries around 3.29 million bpd. Analysts estimate that the losses of Russian supply due to infrastructure strikes are at 10%, and for petroleum products, significantly higher.
Russian Oil Products Market: Diesel Export Decisions to be Made by September 1
The domestic fuel market in Russia remains under manual control. The ban on gasoline exports is in effect until January 31, 2027, and on jet fuel until the end of November. The ban on diesel fuel exports for producers expires on September 1, and according to industry sources, the government is leaning towards extending it at least until the end of September, with discussions even including an option until year-end. Deputy Prime Minister Alexander Novak stated there are no logistical issues with diesel and that several refineries are returning from maintenance, however, a shortage has returned to certain regions after a brief respite in August. To fill the market, imports from Belarus and Asia are being used, as well as a temporary reduction in exchange sales norms to 2%. This situation for the global oil products market means the absence of Russian diesel volumes at the peak of the European deficit.
Electricity, Renewables, and Coal: Energy Crisis Extending the Era of Coal
The war in the Middle East has rewritten electricity forecasts. The IEA expects coal generation to reach around 10,974 TWh in 2026 — nearly a third of global production at 33,313 TWh and 77% more than wind and solar combined. Gas generation, which was expected to grow by 1.3%, will remain at last year's level: expensive LNG has made coal more competitive in Europe and Asia. Meanwhile, the energy transition is accelerating in locations with domestic resources:
- In the U.S., solar generation grew by 21% in the first half of the year, hydro by 9%, and wind by 6%; wind and solar contributed 20% to generation, surpassing coal and nuclear power combined for the first time.
- Coal generation in the U.S. dropped by 10% to 323 TWh, while coal exports are projected to reach 102 million short tons due to Asian demand.
- Texas has halted the approval of new data centers, and the EIA downgraded the state's load growth forecast for 2027 from 14% to 6%.
- U.S. tariffs on polysilicon and solar modules, effective from August 6, are raising the costs of new renewable projects.
What to Watch for on Friday, August 28: Energy Market Participants Calendar
- Washington's response to the Iran-Oman agreement and signals for resuming direct contacts.
- Kpler data on transit through the Strait of Hormuz and investigation into the tanker attack.
- The Russian government's decision on diesel fuel exports after September 1.
- Injection rates in EU gas storage facilities and the close of the week for TTF near three-year highs.
- Baker Hughes rig count and macroeconomic statistics from the U.S. impacting demand forecasts.
- The threat from Houthis to the Red Sea and the reconfiguration of Saudi export logistics.
- Preparation for the OPEC+ meeting on September 6 and signals for a pause in quota increases.
Week's summary: The oil market is drifting towards a de-escalation scenario but remains hostage to physical flows through Hormuz, where data from the White House and tracking companies diverge significantly. Gas and petroleum products — diesel in the U.S. and Europe, LNG for EU storage — have become the key points of deficit in global energy for autumn 2026, while coal has received an unplanned reprieve in the energy transition. Daily analytics on oil, gas, renewables, and the energy market can be found in the Open Oil Market Telegram channel.
