Oil Market: Third Session of Decline, Brent at $86, WTI at $80
Oil prices continued to decline on Wednesday for the third consecutive day: Brent fell roughly 3% to mark $86 per barrel, whereas WTI dropped to $80. On Tuesday, Brent closed below $89, and since the beginning of the week, both benchmarks have lost 8–9%. This represents the deepest weekly correction since mid-June, when the market was reacting to the first US-Iranian memorandum. Nevertheless, relative to pre-war levels (around $71 at the end of February), Brent is still trading at a premium of approximately 20%.
Key Price Drivers for August 27
- Diplomacy in the Strait of Hormuz: The joint statement from Tehran and Muscat regarding the temporary corridor is seen as the first practical step towards increasing transit after the failure of the June memorandum.
- US sanctions were milder: Washington did not impose secondary sanctions against Iran's trading partners, limiting itself to a "correction period" and specific additions to the OFAC list.
- Signs of de-escalation: The visit of the Chief of the General Staff of Pakistan to Tehran, continuing Qatari mediation, and reports of the potential return of evacuated US diplomats to the region reduce the likelihood of a new round of strikes.
- US inventories: According to estimates by API, commercial oil inventories increased by 4.2 million barrels in the week ending August 21, against expectations of a rise of 0.6 to 1.9 million, adding pressure on prices.
The forecasting backdrop remains mixed. The US Energy Information Administration (EIA) anticipates an average Brent price around $85 in the third quarter, along with a continued decline of Middle Eastern production by approximately 0.6 million barrels per day until the end of 2027. In its August report, the IEA estimates a decline in global oil demand in 2026 by 1.6 million barrels per day, followed by a rebound of 2.4 million in 2027; observed global inventories fell by 69 million barrels in July, while refinery throughput remains nearly 5 million barrels per day below last year’s levels. Crack spreads for diesel and jet fuel in the Atlantic Basin are holding at record levels, indicating that the physical oil products market remains notably tighter than what Brent prices signify.
Strait of Hormuz: Temporary Corridor Iran - Oman and Mine Clearance Project
The major news of the week comes from Tehran. Following the visit of Omani Foreign Minister Badr al-Busaidi to Iranian counterpart Abbas Araqchi, the parties announced the agreement on a "phased framework" that could serve as a practical basis for the resumption of safe navigation. The document includes:
- the establishment of a temporary joint navigation corridor through the Strait of Hormuz;
- a joint project for mine clearance in the strait;
- the continuation of technical negotiations regarding a permanent corridor, future administration of the strait, information exchange, traffic management, and the provision of navigation and security services;
- the inclusion of other Gulf coastal states in the dialogue.
Iran's Deputy Foreign Minister Kazem Garibabadi clarified that the inbound route to the Persian Gulf will fully pass through Iranian waters, while the outbound route will traverse both Iranian and Omani waters; additional negotiations are expected to take 30–60 days. Al-Busaidi expressed hope to announce the launch of the corridor "in the near future." Two caveats are crucial for the market. Firstly, the US still insists on freedom of navigation along the southern route off Oman under naval protection, rather than Iranian traffic control. Secondly, the mention of mine clearance contradicts recent statements from Washington that the mines have already been removed, although the US has reported demining of the central section of the strait. Risks remain: on Tuesday, the UKMTO reported an attack on a tanker with an unidentified projectile near the Omani coast close to the strait. Before the war, approximately 20 million barrels per day of oil and oil products passed through Hormuz; according to industry analysts, the market still lacks about 8 million barrels per day.
US Sanctions: "Economic Outcast" Without Secondary Measures for Now
The campaign announced by the US Treasury on August 24, termed "Operation Economic Outcast," was presented as an "economic D-Day," but its first phase turned out to be more of a warning. Sectoral definitions affected digital assets, technology, gold, aviation, and maritime transport, with around 60 entities, individuals, and vessels linked to the export of Iranian oil listed by OFAC. However, secondary sanctions against partner countries have not been implemented: Secretary Scott Bessent speaks of a "correction period" and individual timelines for certain states, refusing to name them or specify deadlines. A decision regarding an unnamed financial institution is promised by the end of the week.
The reactions from counterparties have been indicative. The UAE announced the cessation of all trade with Iran; Beijing urged Washington to "act rationally"; the head of Iran's central bank stated that the new measures do not add pressure, and the country had previously accumulated foreign currency reserves. A key question for the oil market is whether the administration will take action against Chinese banks ahead of the anticipated visit from Xi Jinping. For now, the market is pricing in a 'no.'
US Inventories: SPR Approaches Operational Minimum
The API report for the week ending August 21 served as a cold shower for the bulls. Amid a 4.2 million barrel increase in oil inventories, gasoline stocks fell by 3.2 million, distillates by 0.5 million, and inventories in Cushing grew by 1 million. The strategic reserve saw an additional 3.7 million barrels withdrawn over the week, down to 289.7 million, which is close to the widely accepted operational minimum of 250–300 million. According to the latest official EIA data, commercial oil inventories were at a five-year average level, gasoline stocks were 5% below, and distillates were 13% below normal. The official EIA statistics for the reporting week were released on Wednesday evening, and they will determine whether such a steep increase will be confirmed.
OPEC+: Quota Increase Pause to be Reviewed on September 6
September's quota increase of 188,000 barrels per day capped the reversal of voluntary cuts in 2023 amounting to 1.65 million barrels per day. Seven countries of the alliance (Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, Oman; the UAE left OPEC in May) will meet on September 6, and the market's baseline scenario is a pause for the fourth quarter in preparation for negotiations on quotas for 2027, where Iraq seeks a "fair share." Due to export restrictions in the Gulf, Russia, and Kazakhstan, the nominal increases in quotas this year have barely made it to the physical market, so with the potential opening of Hormuz, the alliance will have to manage an emerging surplus.
Gas and LNG: TTF Retreats from €68, EU Gas Storage at 63%
The European gas market remains the most vulnerable segment of the energy sector, but a respite has also emerged here. TTF futures fell below €67/MWh after peaking at €68.46 on Monday — the highest level since January 2023. The decline reflects hopes for de-escalation and the absence of a physical strike on supplies from new US sanctions. However, the fundamental picture has not changed:
- Inventories: EU gas storage is currently around 63% filled, compared to a seasonal norm of about 80%; the target for November 1 has been reduced from 90% to 80%, and the current injection rate will only allow reaching ~80-81%.
- Qatari LNG: The return to a full shipping schedule to Europe is unlikely before the start of the fourth quarter, considering the timelines for mine clearance.
- Norway: Equinor launched the second phase of Troll Phase 3 on August 22, several months ahead of schedule, accelerating the extraction of 55 billion cubic meters; this supports exports from a field that covers about 10% of European demand but does not add new resources.
- Asia: The spot LNG JKM remains around $21–22/MMBtu, with the spread to the US Henry Hub (below $3/MMBtu at record US production levels) continuing to justify a wave of investments in export terminals.
Electricity and Renewables: Heat, Storage, and Rising Share of Solar
The summer season of 2026 confirms that the energy transition is accelerating, but networks remain under stress. In Japan, wholesale electricity prices reached their highest levels since 2023 amid heat waves and increased demand for cooling. In the US, according to EIA data, solar generation in the first half of the year grew by 21%, hydro by 9%, wind by 6%, while coal output decreased by 11%; in the second half of the year, hydro generation is expected to decline by 3% due to drought conditions in the West. Ember reports that in 2025, renewables overtook coal for the first time in the global balance (33.8% versus 33.0%), and battery costs have fallen by 45% with a 46% increase in storage installations to 250 GWh. The IEA, however, reminds us that coal will remain the largest single source of electricity at least until 2030, while the war in the Gulf has temporarily restored its competitiveness in Europe and Asia due to expensive gas.
Coal: Newcastle Above $131 — Three-Week High
Energy coal in Newcastle rose to $131–132 per tonne, 18% higher than last year's level, amid heatwaves in Japan, signals of stimulus in China, and ongoing shifts from gas to coal. European ARA trades around $122/t, and Australian coking coal hovers near $236/t. EIA has increased its 2026 coal export forecast from the US to 102 million short tons. China, in its new five-year plan, is focusing on consolidation and the "intellectualization" of mines while strictly closing outdated capacities, which limits supply elasticity.
Russia: Diesel Export Ban Extended at Least Until End of September
According to industry sources, the Russian government intends to extend the complete ban on diesel fuel exports, which has been in effect since early July and was set to expire on August 31, at least until the end of September, with discussions about an extension until the end of the year. The gasoline export ban remains in effect until January 31, 2027, and for jet fuel until the end of November. Fuel shortages returned to certain regions in August after a brief respite; to saturate the market, Russia is importing oil products from Asia and Belarus, while Deputy Prime Minister Alexander Novak reports that several refineries are resuming operations from planned repairs. Meanwhile, crude oil exports remain high: in July, India imported a record 2.8 million barrels per day of Russian oil, and the average price of Urals was around $60, significantly above the G7 price cap of $44.10.
What to Watch on August 27: Calendar for Energy Market Participants
- The official announcement of the temporary corridor Iran - Oman and the US reaction to the Iranian-controlled route scheme.
- The promised decision from the US Treasury regarding the financial institution and the first "deadlines" for Iran's partner countries.
- The results of the EIA report on oil and petroleum product inventories in the US and SPR dynamics.
- The investigation into the tanker attack off the coast of Oman, the position of insurers and shipowners.
- Injection into the EU gas storage facilities and holding TTF below €67/MWh.
- Signals from the OPEC+ delegations ahead of the September 6 meeting.
- The Russian government's decision on the timing of the diesel export ban.
In conclusion: the oil market has finally received a documentary reason to reduce the geopolitical premium for the first time in a month; however, between the statement about the corridor and the actual increase in transit through the Strait of Hormuz lies mine clearance, route coordination with the US, and 30–60 days of technical negotiations. The European gas market enters the heating season with supply shortages, while coal and renewables are simultaneously gaining ground in the global electricity sector. Daily analytics on the energy market can be found in the Telegram channel Open Oil Market.
