Oil Market: Brent around $92, WTI around $85—A Pause After the Rally
Oil prices closed on Monday down more than 2%: Brent ended near $92 per barrel, while WTI trades around $85. This marks the first significant correction after two weeks of growth, during which the market priced in stalled negotiations over the Strait of Hormuz and attacks on vessels in the Persian and Oman Gulfs. Compared to pre-war levels (around $71 for Brent at the end of February), the geopolitical risk premium still stands at about 30%.
Key price dynamics factors for today:
- Sanction Factors: The market is awaiting specifics regarding new US restrictions—tightening pressure on buyers of Iranian oil could reduce supply, but simultaneously increases the risk of escalation in the Strait.
- Physical Flows: Transit through the Strait of Hormuz remains significantly lower than pre-war levels of approximately 110 vessels per day; tracking data indicates that certain days see only a handful of passages, with hundreds of tankers awaiting off the coast.
- EIA Forecast: The US Energy Information Administration expects an average Brent price of around $85 in the third quarter and about $87 for the year-end 2026; a return to pre-war levels of Middle Eastern production is not expected before early 2027 while maintaining a decrease of about 0.6 million barrels/day until the end of next year.
- Inventories: API's report will be released on Tuesday evening, followed by EIA data on Wednesday; US commercial oil inventories remain below the five-year average, supporting the temporary structure of the market.
“Economic Outcast”: US Shifts the Conflict with Iran into a Financial Sphere
On August 24, US Treasury Secretary Scott Bessent introduced a campaign that the administration itself called "economic D-Day." Its aim is to "cut off all economic lifelines" to the Iranian regime and achieve the resumption of shipping through the Strait of Hormuz without a new round of airstrikes. Key elements of the package include:
- Sectoral sanction definitions in five areas deemed "vital" for Tehran: digital assets, technology, gold, aviation, and maritime transportation.
- Over 60 legal entities, individuals, and vessels included on the OFAC lists—including a network of brokers and a "shadow fleet" operating through the UAE, Hong Kong, China, Singapore, and Switzerland for transporting Iranian oil.
- Expansion of secondary sanction risks for any counterparties of Iran: countries will be given a specific deadline to wind down their ties, after which unilateral measures will follow.
- Promise of a major sanction decision regarding an undisclosed financial institution by the end of the week.
The most severe blow has been postponed for now: Bessent referred to the announcement as a "warning shot," while President Trump personally contacts world leaders with "specific requests." According to experts' assessments, China, India, Turkey, Iraq, and the UAE are at risk. Tehran responded with a promise of a “seismic” response, while the Iranian finance minister stated complete readiness for new restrictions. For the oil market, the crucial question is whether Washington will impose sanctions against Chinese banks: China remains the main buyer of Iranian oil, although the maritime blockade has already reduced its imports from Iran to about 340,000 barrels/day, down from 1.14 million in March.
Strait of Hormuz: Attack on Tanker and Negotiations via Oman
Early on Tuesday, the British center UKMTO reported that an unidentified projectile hit an oil tanker approximately nine nautical miles off the coast of Oman: the engine room was damaged, the crew was unharmed, and the environmental implications are being assessed. The incident underscores that despite US claims of "complete control" over the Strait, maritime safety has not been restored.
The diplomatic track remains active. Iran and Oman continue discussions on the maritime protocols, with indirect contacts between Tehran and Washington taking place through Pakistan. However, both parties’ positions are rigid: Iran insists on lifting the US maritime blockade and recognizing its right to regulate (and charge fees for) vessels passing through, while Washington demands freedom of navigation. A memorandum from June 17 already collapsed once in July, leading the market to cautiously assess the likelihood of a quick breakthrough.
OPEC+: Quotas Restored, Physical Production Not
The September quota increase of 188,000 barrels/day completed the turnaround from voluntary reductions in 2023, amounting to 1.65 million barrels/day. Seven alliance countries (Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, Oman; the UAE left OPEC in May) have indicated that quotas are likely to remain unchanged until the end of the year. The next decision regarding October quotas is expected on September 6.
A key nuance for investors: paper quotas and actual production have diverged. Due to the closure of the Strait, attacks on infrastructure, and forced halts, actual OPEC+ production remains several million barrels per day below February levels. This is why analysts warn that once flows normalize, the alliance will need to manage not a deficit, but a potential surplus.
Gas and LNG: TTF Above €65/MWh Amid Lagging Injection into UGS
The European gas market remains the most strained segment of the energy sector. September futures at the TTF hub are trading near €65/MWh—its highest since January 2023 and over 20% higher than two weeks ago. The reasons include:
- Qatari LNG Shortage: Loadings from the Persian Gulf via the Strait of Hormuz occur sporadically, with QatarEnergy reluctant to return to a full schedule.
- Low Inventories: EU underground gas storage was only 61.4% filled as of August 17, compared to nearly 74% a year earlier; the target level for November 1 had to be reduced from 90% to 80%.
- Heat and Hydropower: Abnormally high temperatures increased demand for gas for generation, while record-low hydropower output heightened the load on gas units.
- Competition with Asia: Spot LNG rates for JKM are hovering around $21+/MMBtu; Japan, Korea, and Taiwan are partially hedging risks with coal.
Amid this backdrop, the American Henry Hub remains below $3/MMBtu with record production in the US of about 122.5 billion cubic feet per day—the spread between American and global gas continues to justify a wave of investment in LNG export terminals.
Power Generation and RES: Record Solar Generation Saves the Grid
The summer of 2026 has been a stress test for Europe's energy systems. In June-July, hydropower output in the EU fell to its lowest in at least a decade, France reduced nuclear power capacity due to overheated rivers, and intraday prices in France and Germany exceeded €300/MWh during evenings, while in Southeast Europe, they reached €700/MWh. Nonetheless, the grids held up thanks to record solar generation: on peak hot days, solar output was 17% higher than usual. The main takeaway for regulators is that deficits occur during the evening hours, prompting accelerated investments in storage: the UK is subsidizing 7.6 GW of long-term battery storage, while Spain could triple storage capacity by year-end.
In the US, wind and solar energy surpassed coal and nuclear combined for the first time in the first half of the year, accounting for 20% of output; solar generation rose by 21%, hydropower by 9%, and wind by 6%. Demand from data centers remains a growth driver, although Texas has paused approvals for new sites.
Coal: Newcastle Around $130 per Tonne, Asia Hedges LNG Risks
Energy coal from Newcastle has stabilized around $130/ton after averaging $144 in June. Price pressure stems from cooling demand in China due to a rainy summer and increased domestic production in India (+7.5% YoY in July, to 69.75 million tons). Support comes from energy security: Japan, South Korea, and Taiwan are increasing coal purchases as a hedge against LNG supply disruptions. The consensus for Q3 stands around $130/ton, gradually dropping to $120 by 2027; coking coal hovers near $240/ton amid restrictions in China.
Russia: Oil Exports to Asia at Records, Domestic Fuel Market in Manual Mode
Russian oil exports are being redirected to the East. In July, China purchased 50% of Russian crude oil, while India accounted for 37%; Indian refineries imported a record 2.8 million barrels/day—55.5% of the country’s total imports. The average price for Urals in July was about $60 per barrel—above the new G7 and EU cap of $44.10, effective since February. Chinese purchases of Russian maritime shipments increased by 28% month-on-month: refineries are replacing the shortfall of Middle Eastern barrels.
The domestic market for oil products is experiencing a second wave of the crisis:
- The ban on gasoline exports has been extended until January 31, 2027, while the diesel fuel restriction is in effect until September 1, with decisions about extending for producers still pending;
- Deputy Prime Minister Alexander Novak reported the return of several refineries to operation after repairs, confirming that the federal headquarters meets twice a week;
- The shortfall is being covered by imports (Indian gasoline is now for sale) and by the production of environmentally friendly fuel grades K-2-K-4, with a share that will not exceed 10%;
- In the South, including the Krasnodar region, oil companies are imposing limits on fuel releases during the peak holiday season;
- A ban on the export of aromatic hydrocarbons—raw materials for high-octane components—is under discussion.
What to Watch on August 26: Calendar for Energy Market Participants
- Details of US sanctions—the list of countries receiving "deadlines," and the announced decision regarding the financial institution.
- Investigation into the attack on the tanker off the coast of Oman and the response from insurers and shipowners.
- Progress in Iran-Oman negotiations concerning maritime protocols in the Strait of Hormuz.
- Weekly API data on oil and oil product inventories in the US.
- Trends in European gas storage and TTF quotes amid the remaining injection season.
- Preparation for the OPEC+ meeting on September 6: signals regarding a pause in quota increases.
In summary, the oil market is balancing between two scenarios—successful financial pressure leading to the reopening of the strait and a decline in Brent to $80–85, and escalation that could return prices to three-digit values seen in spring. The European gas market, in any case, enters the heating season with a lower margin of safety than a year ago, while the energy transition receives an additional boost from record solar generation and investments in storage. For daily analytics on the energy market, follow the Telegram channel Open Oil Market.
