Happy Friday!
Oil is ending the week around $82 a barrel, up sharply from last Friday’s close. The diplomatic announcements kept coming all week, but so did attacks. Both the US and Iran now openly claim they control the Strait of Hormuz. The shipping data says neither is telling the full truth. We continue as we have over the past months with “believe it when I see it” territory. Here is what drove the market this week.
Monday started with some optimism. Iran and Oman reported their talks on new shipping lanes through the Strait were progressing smoothly, with a route map already agreed and only technical details left to finalize. But Iran immediately attached a full list of conditions for anything broader regarding opening the strait. The demands include US compensation for attacks on Iran, an end to military threats, removal of the naval blockade, lifted sanctions, and release of frozen assets. Trump’s response was a bit passive. He told reporters the US is only semi-negotiating on Hormuz and is willing to let economic pressure build rather than order fresh strikes. The logic: crude prices have come down considerably from the war’s peak, giving Washington some room to wait. But that breathing room may be shrinking faster than the administration thinks. The SPR is at its lowest level since the early 1980s. The squeeze is sharpest in diesel. Diesel is trading above $160 a barrel in Europe and hit simultaneously by Russia’s ongoing conflict with Ukraine. Reports from a major crude shipper stated that 15 of its vessels have been attacked transiting Hormuz since the war began. Saudi Aramco pushed back the restart of its Jazan refinery to August 30 after Houthi forces struck it again over the past weekend.
Tuesday brought a 5% surge in oil prices after Trump responded to Iran’s conditions list with a demand of his own. Trump is demanding that Iran pay compensation for people killed in wars, attacks, and protests. The demand makes reopening the Strait harder, not easier. Pakistan, which has been quietly mediating throughout this war, signaled the two sides were getting closer. The news pushed oil prices down a bit. But attacks started up again. Houthi forces attacked a cargo ship in the Bab el-Mandeb, reportedly killing three crew members. A Libya refinery was struck by drones for the third time since the weekend, with Libya’s state oil company warning it may halt operations entirely if attacks continue. Hormuz traffic stayed minimal. Only six vessels transited Monday. As a reminder, the prewar daily average was 130 to 140 ships.
Wednesday was the week’s most data-heavy day. The EIA weekly inventory report showed US commercial crude stocks jumped 17.4 million barrels. This was the largest single-week build since January 2023. Crude imports jumped sharply as refineries continued running at 96% of capacity. Gasoline stocks dropped and remain 6% below normal. Distillates barely moved but are still running about 12% below average. The IEA’s monthly report delivered an eyebrow-raising report. They claim that global oil markets face a supply shortfall of 1.8 million barrels a day this quarter. That number is more than double earlier projections. The predictions are based on renewed hostilities and shipping disruptions that could derail the expected Middle East production recovery. For 2026 as a whole, the IEA projects the widest supply deficit in five years. There was some welcome inflation news. Consumer prices rose 3.4% in July. CPI report was cooler than both June’s reading and expectations. The main driver for lower CPI was the drop in gasoline prices throughout July. On the diplomatic front, Trump claimed the US has total control over the Strait of Hormuz. Tehran responded with continued insistence that the waterway stays closed unless Washington meets its conditions.
Thursday brought a reversal. Oil fell roughly 2% as OPEC cut its 2026 demand growth forecast for the fourth straight month. The SPR fell below 300 million barrels for the first time in almost 35 years. That is the emergency reserve America built specifically for moments like we are in with the war in Iran, Ukraine, and world oil supply disruption. The fight over who controls Hormuz took a strange turn. Iran’s paramilitary chief declared the strait is under the management and control of the Islamic Republic. This was one day after Trump said the US had total control. Both claims can’t be true. Two oil vessels were attacked while transiting Thursday, which the UAE government is calling an Iranian attack. Russia’s refining sector added another issue to its ongoing crisis. Their Orsk refinery was hit by a Ukrainian drone strike earlier in the week, shutting it down completely with repairs possibly taking six months. Russia, one of the world’s biggest oil exporters, imported its first-ever cargo of Indian gasoline this month. The reports continue to emphasize just how badly Ukrainian drone attacks have disrupted Russian refining capacity.
Friday pushed oil higher again as the US announced it would soon implement unprecedented new economic measures against Iran and confirmed the naval blockade would continue indefinitely. Treasury Secretary Bessent described an economic isolation campaign coming that would go beyond existing sanctions. At least four Asian refiners bought US crude this week as Hormuz remains effectively closed. Before the war, Asia sourced more than half its crude from the Middle East. In July, the region imported a record over 2 million barrels a day from the US instead. Russia’s share of India’s oil imports hit a record 50% in July, up 62% from a year ago, as the Middle East supply crunch pushed Indian refiners back to Russian crude. The US Senate passed legislation imposing 100% tariffs on buyers of Russian oil, raising pressure on India purchasing such a high volume of Russian crude. Ukraine offered Russia a Black Sea truce covering civilian targets today, even as it resumed near-daily refinery attacks and struck Russia’s Baltic port overnight. The US sold $25 billion of 30-year bonds at 5.216%. This is the highest rate in a quarter century. The sale is a sign investors are demanding more to finance the growing federal deficit. The bond sale is not directly about oil, but puts eyes on watching how the US dollar trades.
The Chicago spot market followed futures higher all week. Diesel jumped over 30 cents a gallon and gasoline rose over 20 cents. To put this in some context, diesel prices have now risen over 85 cents in just the past four weeks. At the current ratio of diesel to crude oil prices, we are hitting diesel cost levels that used to correspond to crude at over $100 a barrel, if not well over $110/barrel. If global diesel supply stays this tight with no major demand drop, retail diesel prices could push past $6 a gallon. I do expect to see both gasoline and diesel retail prices continue to rise at the pump heading into next week.
Propane again is playing the same song. Inventories are robust, price movements remain narrow, and the supply picture heading into fall looks healthy. That said, like a broken record, shipping logistics will cause a price spike at some point during winter. They always do. It is exactly why we recommend topping off your tank at summer rates now and booking some heating gallons for the upcoming 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