Happy Friday!
Oil is ending the week right around $82 a barrel. This is down from where it started Monday. Every day brought new diplomatic signals and fresh attacks, often within hours of each other. The Iran-Oman talks over Hormuz progressed enough to move markets. So did the Houthi missile strike on a Saudi tanker near Yanbu. We are definitely still in “believe it when I see it” territory. Here is what drove the market this week.
Monday started with oil down sharply on hopes that diplomacy might actually be gaining traction. Trump said over the weekend that Iran and other Gulf states had asked for more time to finish a deal, and that talks would begin Monday. Iran’s foreign ministry said the opposite. He said no talks were underway, no meetings were on the calendar. It is the same claim-and-deny pattern we have seen repeated for weeks. Here is what is real. OPEC+ approved a modest production increase of about 188,000 barrels a day starting in September, completing the unwind of production cuts first agreed back in 2023. On paper, that is more supply. In practice, the disruptions from this war have made most OPEC quota moves irrelevant. But when the strait eventually reopens and Gulf producers start pumping full speed, those barrels will matter. Hormuz traffic stayed thin over the weekend. The Bab el-Mandeb saw declining traffic too, down to just 18 vessels on Sunday from 28 on Friday. The world’s crude spare capacity has been draining for more than five months now, and it is noticeably thinner than it was in February.
Tuesday brought the week’s most whipsaw session. Prices rose early after fresh incidents in the Strait, then reversed hard and fell about 4% as Treasury Secretary Bessent said a deal to reopen Hormuz could come as soon as Tuesday or Wednesday. Qatar confirmed draft language on a broader US-Iran agreement was already circulating. Qatar was careful to note that no direct talks between Washington and Tehran are actually happening yet. That combination was enough to erase the morning’s gains and more. On the supply side, US crude exports dropped to their lowest level in eight months in July, as the brief June peace deal temporarily flooded the market with Middle Eastern oil and cut demand for American barrels. One sobering detail buried in Tuesday’s news was that the US Army has possibly burned through virtually all of its long-range missile stockpiles during this war. That is not a small thing for any future escalations.
Wednesday pushed WTI higher after the Houthis struck a Saudi oil tanker near Yanbu. Remember, the Red Sea port has been Saudi Arabia’s main export workaround since Hormuz closed. That attack landed the day after Qatar said mediators were making real progress. The optimism diminished quickly. Iran again denied any peace talks are underway, directly contradicting Trump’s statements. The core sticking point remains unchanged. Iran wants control over ships entering the Strait of Hormuz. That is no longer a negotiating position for Tehran. It is a red line. The EIA inventory report gave the market a slight surprise. Crude stocks actually built by 2.5 million barrels to 407 million barrels, about 6% below the five-year average. Gasoline fell 1.6 million barrels and distillate dropped 3.5 million barrels, running roughly 12% below normal for this time of year. Refineries eased slightly to 96.5% capacity.
Thursday brought meaningful news on the development of controlling the Strait of Hormuz. Iran and Oman reached an understanding on a path for new shipping routes through the Strait. The proposed arrangement would give Tehran control over ships entering the Gulf, with both inbound and outbound passing through Iranian waters. There is a catch though. US officials have repeatedly insisted they would never accept Iran controlling access to the strait. So a potential military response from the US is back on the table if Oman and Iran agree to a deal. Prices came back to roughly where they traded before the June ceasefire, but the underlying situation is more fragile now than it was in June. Iran’s negotiating position has strengthened, inventories are lower, and there are more shipping routes being disrupted. The Houthis struck two more Saudi tankers on Thursday, and Iran warned Gulf states that any new US attack on Iran would trigger retaliation against energy infrastructure across the region.
Friday looks to close the week slightly higher as investors weighed the Iran-Oman deal. Iran is seeking fees of 5-7% of cargo value from ships using Hormuz. Oman is pushing for around 3%. Washington wants no fees at all. There are still a lot of details to iron out going into the weekend. Hormuz traffic fell to just 33 vessels for the full week Monday through Thursday, down from 50 the prior week. Only four vessels crossed on Thursday. Saudi Arabia expects continued attacks from Iraqi militias operating under Iran’s Revolutionary Guard. In response, Saudi Arabia, Pakistan, and Turkey signed a joint defense agreement. One very interesting supply data point stands out from Friday’s data. US imports of Saudi Arabian oil dropped to zero in July, yes, zero. That is the first time that has happened since 1985. July’s jobs report came in far weaker than expected. Payrolls fell by 23,000, versus expectations of an 80,000 gain. The weak jobs data eases pressure on the Fed to raise rates next month. However, a weaker dollar puts upward pressure on the price of crude. Although the jobs report was weak, the economy itself grew at its fastest pace in three years last quarter further supporting crude oil prices on the demand front.
The Chicago spot market continues to run at full capacity. Prices for gasoline and diesel ended up lower for the week despite a large recovery in prices on Thursday. I still expect to see retail prices move lower heading into next week. Crack spreads continue to run hot with crude oil price in steep backwardation. Chicago differentials remain stable, but with refiners needing to sell every barrel they produce, the chances of a refinery running into an issue remain high. Hopefully we get through the rest of the summer without any major disruptions.
Propane prices again are boring and quiet. Nothing much new to report. There was a small price dip mid-week that fully recovered the next day. Inventories remain healthy and well above the five-year average, so no red flags heading into fall. If you are able, I still recommend topping off your tank and contracting some gallons for next heating 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