Happy Friday!
WTI crude oil ended the week around $69 a barrel. The current price is below where prices were before the Iran war began. And this was the week the market made clear it believes the supply is actually coming back. From Monday’s peace talk optimism to Thursday’s record flows through the Strait, prices fell nearly $7 in five trading sessions. And yet, by Friday, a vessel attack near Oman, Iran turning back tankers it deemed unauthorized, a revealing of unreported damage to the U.S. naval base in Bahrain reminded everyone that $69 is a trading level, not necessarily a reality.
The week opened Monday with encouraging signals out of Switzerland. The first formal round of U.S.-Iran peace talks wrapped up with both sides calling it “major progress,” and Vice President Vance publicly confirmed the Strait of Hormuz is open for business. Iran’s Foreign Minister confirmed that Iran had secured waivers allowing oil exports to begin, frozen assets would be released, and that the reconstruction fund has been formally launched. Oil fell on the news. Physical proof supported the announcements on Monday. More than 25 million barrels of Iranian crude passed through the blockade, and the US reported that 55 ships crossed the Strait on Saturday carrying roughly 17 million barrels. Even though the day before Iran’s Revolutionary Guard briefly declared the Strait closed again, citing Israeli strikes in Lebanon, Iran kept the oil flowing.
Tuesday brought the week’s biggest policy shift. The U.S. officially waived Iran’s oil sanctions for the first time in nearly a decade, authorizing the sale of Iranian crude through August 21. It is a dramatic reversal after years of maximum pressure designed specifically to keep Iranian barrels off global markets. Although selling that oil is harder than it sounds. About 68 million barrels of Iranian crude are sitting on the water and most are available for purchase. But the market is full. EU and UK restrictions remain in place even with the U.S. waiver. Some ports may refuse Iran’s shadow tanker fleet entirely. And buyers are wary that Trump could reverse the waiver at any moment, leaving them committed to a cargo that becomes sanctioned again mid-deal. China, Iran’s traditional anchor buyer, is not rushing to purchase. China’s domestic demand is flatlining and private refiners there are running at a nine-year low utilization rate.
Wednesday was when prices really broke. WTI fell to about $72 a barrel as tanker traffic through the Strait kept building and Middle Eastern supply rushed back onto a market that had been short of barrels for months. Physical crude cargoes started selling at discounts in multiple markets, a clear sign that supply was outpacing near-term demand. The war premium in oil had not just unwound, it started to reverse. But a serious crack appeared on Wednesday. Trump stated publicly that Iran had agreed to nuclear inspections “into infinity” as part of peace negotiations. Iran’s side flatly denied ever making that concession. That is not a small disagreement over wording. Nuclear inspections are the core issue the 60-day ceasefire window was supposed to resolve. On the domestic supply front, the weekly EIA inventory report confirmed crude stocks fell another 6.1 million barrels last week and are still about 7% below the five-year average. The massive draw was even more defined because gasoline stocks rose 2.1 million barrels and distillates climbed 3.1 million barrels.
Thursday brought WTI below $70 a barrel for the first time, closing at $69 and fully erasing all the price gains from the four-month Iran war. Th U.S. confirmed at least 20 million barrels of oil exited the Strait in the previous 24 hours. But Iran made clear it intends to keep managing traffic on its own terms. Whether the Strait truly returns to an open or remains under Iran’s effective management is one of the most important unresolved questions hanging over the long-term stability of global oil supply. Trump addressed Iran’s desire for tolling by stating he will not accept any peace deal that includes tolls on ships transiting Hormuz. Iraq complicated the OPEC picture Thursday as well, signaling it is considering leaving the organization if it does not get a significant quota increase. Iraq is OPEC’s second-largest producer and one of its five founding members. Losing Iraq two months after losing the UAE would be a serious blow to OPEC’s ability to manage global supply. China added to the bearish pressure by raising its refined fuel export allowance for state refiners in July with no restrictions on destination countries.
Friday closed the week with WTI near $69, but not without drama. Saudi Aramco resumed oil loading after nearly a four-month halt. There were two very large crude carriers actively taking on crude, with a third waiting nearby. But a cargo vessel reported being struck by Iran near Oman on Thursday. The UN’s Maritime Organization responded by pausing its escort operation through the Strait. Iran doubled down on the attack. Iran reasserted its right to control all shipping through the waterway, warned Gulf states against siding with the U.S., and the Revolutionary Guard turned back three tankers attempting what it called unauthorized passages. Iran made its position explicit: ships using routes not designated by Tehran do so at their own legal and financial risk. Iran is reacting to that united front between Gulf Nations and the US, and Friday’s events make clear the standoff over who actually controls the Strait is far from resolved.
Chicago spot market was very wonky this week as the July prompt spot contract expired and moved to August. There was a frenzy of gasoline trades placed at the expiration causing pricing frustration. Gasoline prices whipsawed in opposite directions of predicated price indicators. Hopefully by the start of next week we will see some balance in the gasoline market. For now, retail prices should still stay in the current range. Diesel prices did not experience the same volatility as gasoline at month end. Diesel prices continue to drop, and I expect to see retail prices continue their slow and steady decline. Also, a massive refinery in Pennsylvania went down with a fire and traders are waiting patiently to see if some Chicago supply might be moved east. Time will tell.
Propane spot prices surprisingly dropped this week after months of stability. Retail prices dropped but nothing majorly significant compared to the last two months. I still believe that filling up your tank now is a good buy and I recommend locking in some heating gallons for next season.
As always, if you have any questions, please feel free to give us a call. Have a great weekend!
Best regards,
Jon Crawford
Sources: Bloomberg, Reuters, Wall Street Journal