fiisual Biweekly Oil Report : The Strait of Hormuz and the Bab el-Mandeb Strait remain blocked; the ongoing geopolitical standoff means oil prices will continue to carry a risk premium over the long term

Price Summary

Aug 10 - Aug 16: Collapse of US-Iran talks and continued Houthi military action keep both straits blocked, driving up the geopolitical risk premium

Oil prices rose quickly early in the period after US-Iran talks collapsed. The day before the period opened (8/9), Houthi forces struck Saudi Aramco's Jazan refinery with drones. Combined with the previously blocked port of Yanbu, this affected several Red Sea energy facilities that had become key alternative export points after the Hormuz blockage, further disrupting crude supply. On 8/10 Iran and the US began putting forward mutual conditions on compensation and sanctions relief, and talks stalled. On 8/11 Iran said the Strait of Hormuz would not reopen until the US met its demands; the same day, the EIA raised its 2026 oil price forecast, reflecting the possibility that Middle East supply disruptions could last longer. Houthi forces also attacked a cargo ship transiting the Bab el-Mandeb Strait that day, killing four crew members, and the risk of both channels being blocked pushed prices higher still.

Crude prices then broke their winning streak and turned lower mid-period. On 8/13 the EIA reported that for the week ending 8/7, US commercial crude inventories rose 17.4 million barrels to 424.4 million barrels, the largest single-week increase since January 2023. In addition, OPEC and the IEA both cut their global demand forecasts, reinforcing market concerns about weak demand and putting pressure on crude prices.

Prices rebounded higher on the final trading day of the week. On 8/14 the US said it might maintain its maritime blockade of Iran indefinitely and would further tighten economic sanctions. At the same time, a tanker was attacked in the Strait of Hormuz, reviving market concerns about Middle East supply disruptions.

Aug 17 - Aug 23: Risk of both straits remaining blocked continues to push oil prices higher

Early-to-mid week, with no clear easing in Middle East tensions, oil prices kept climbing. On 8/17 Trump continued to threaten sanctions on Iran's trading partners, while the number of vessels transiting the Strait of Hormuz kept falling sharply. On 8/19 the UAE suspended financial and economic transactions with Iran, further worsening regional political relations. On 8/20 Trump threatened "unprecedented" economic sanctions against countries supporting Iran, and the market grew concerned that expanded sanctions could further restrict Iranian crude exports and other Middle East energy supply. At the same time, Houthi forces claimed a drone attack on Saudi Arabia's Najran airport and local Aramco facilities, pushing both Brent and WTI to their highest closes since July 24.

Later in the week, on 8/21, although Trump continued to threaten sanctions on Iran's trading partners, reports emerged that the market was starting to find some alternative supply sources — for example, Saudi Arabia and the UAE supplying Asia via non-Hormuz routes — and the pace of price gains slowed under this pressure. Notably, these alternative routes fall short of the original dual-strait shipping in both export volume and cost. For instance, Japan's second-largest refiner, Idemitsu, began sourcing Saudi crude via the Suez Canal and even the Cape of Good Hope, but the voyage has stretched from about 20 days to 50-60 days, and shipping costs have risen markedly. Saudi Aramco's alternative outlet, Egypt's Sidi Kerir, is expected to handle only about 670,000 barrels per day in August — far below Yanbu's pre-blockage export capacity of roughly 4 million barrels per day — showing that alternative capacity still falls well short of filling the gap left by normal logistics.

Agency Monthly Reports

This Month's Supply-Demand Forecasts from the Three Major Agencies

Units: million barrels per day

EIA Short-Term Energy Outlook, August 2026

Global oil supply: Because passage through the Strait of Hormuz remains severely restricted, the EIA raised its estimate of Middle East crude production offline over the coming months — averaging about 5.5 million barrels per day in July, expected to stay elevated in August before gradually recovering from September onward. While most of the offline Middle East capacity is expected to return to pre-conflict levels by early 2027, a gap of roughly 600,000 barrels per day may persist through the end of 2027, suggesting the supply disruption's effects could last longer than originally expected.

Global oil transport: Transit risk has risen in tandem across both the Strait of Hormuz and the Bab el-Mandeb Strait, putting greater logistical pressure on global oil trade. Crude and petroleum liquids transiting the Strait of Hormuz in 2Q26 totaled only about 4.9 million barrels per day, far below the pre-conflict 4Q25 level of 21.6 million barrels per day. Saudi Arabia has redirected some crude for export via the Red Sea port of Yanbu, pushing volume through the Bab el-Mandeb Strait up to 8.1 million barrels per day. If the Bab el-Mandeb Strait were also blocked, Saudi Arabia could reroute via the Suez Canal or the SUMED pipeline, but these alternative routes cost more, take longer, and have limited capacity, so global oil transport still faces high uncertainty.

Global oil prices: After the US and Iran signed a memorandum of understanding in June, oil prices briefly fell to $69/bbl on July 2, but as vessels in the Strait of Hormuz came under attack again and oil transport volumes declined, the market once again priced in supply risk, with Brent spot prices briefly rising to $105/bbl on July 23. With global crude inventories continuing to fall, the EIA now estimates Brent spot prices will average about $85/bbl in 3Q26, an $11 upward revision from its previous forecast; as the Strait of Hormuz gradually reopens and offline capacity comes back online, prices are expected to fall to $78/bbl in 4Q26 and decline further to $69/bbl in 2027.

Global crude inventories: The prolonged disruption at the Strait of Hormuz has caused global crude inventories to fall rapidly. The EIA estimates global crude inventories will decline by an average of 4.2 million barrels per day in 2Q26 and by 3.8 million barrels per day in 3Q26. With inventories continuing to decline, the buffer available to balance global oil supply and demand is shrinking, making oil prices more sensitive to geopolitical events or supply disruptions. As a result, even once the Strait of Hormuz eventually returns to normal, the market will need time to rebuild inventories, and prices won't immediately return to pre-conflict levels.

US crude inventories: The US crude market also remains tight. The EIA expects US commercial crude inventories at the end of 2026 to fall below the five-year (2021-2025) low. Since mid-April, rising US crude exports, falling imports, and refineries maintaining high run rates have kept drawing down inventories — down about 25 million barrels in May, 15 million barrels in June, and a further 4 million barrels in July. With international demand for US crude still strong, US net imports are expected to remain below average going forward, keeping inventories low.

US refining demand: US refinery crude inputs over the first seven months of 2026 reached their highest level since 2019, driven mainly by high crack spreads that have boosted refiners' willingness to process crude. The EIA expects refinery crude demand of about 17.0 million barrels per day in August, in line with the five-year average; run rates should decline in September-October due to seasonal maintenance, with demand potentially falling below 16.0 million barrels per day in October. Refinery activity should pick back up in November-December, though still below 17.0 million barrels per day. Overall, high refining margins should keep US refineries running at relatively high levels.

US refining margins: US refining margins rose in July, driven mainly by tightening global refined product supply — falling Russian refined product exports, the Hormuz conflict restricting refinery exports from Saudi Arabia and Kuwait, and declining Chinese refinery crude throughput, all of which slowed global refining activity and tightened the refined products market. With supply-side constraints persisting, the EIA expects the tightness in the global refined products market to continue through year-end, supporting US refiners' crack spreads and margins.

Summary: In its August Short-Term Energy Outlook, the EIA expects the Strait of Hormuz to remain severely restricted at least through August 2026, with transport volumes gradually recovering from September, while most Middle East offline capacity is not expected to substantially return to pre-conflict levels until roughly early 2027 (1Q27); a production gap of about 600,000 barrels per day may persist through the end of 2027. This represents a major revision from the EIA's previous forecast that global crude inventories would begin rebuilding in the second half of 2026, with the market returning to oversupply in 2027. In the near term, tight inventories and constrained supply will keep prices elevated; as transport gradually recovers after September 2026 and offline capacity substantially returns online in early 2027, global supply should gradually improve, allowing prices to ease further. In other words, the second half of 2026 will still be dominated by tight supply and low inventories, while early 2027 marks the key turning point for supply recovery, inventory rebuilding, and weakening prices.

IEA Oil Market Report, August 2026

Oil prices: The IEA notes that benchmark crude prices were unusually volatile in July, with a single-month swing approaching $40/bbl at one point, driven mainly by the collapse of the US-Iran ceasefire, the continued closure of the Strait of Hormuz, and Middle East supply disruptions. The market had initially expected supply to recover on the back of diplomatic progress, driving prices sharply lower in June and early July, but as hostilities escalated again in July, Brent briefly rose to $105/bbl on July 23, closed the month at $96.80/bbl, and stood at about $92 as of the report's publication. At the same time, crack spreads for diesel, jet fuel, and gasoline continued to strengthen, with European refining margins hitting a record high, showing that the price rally is now being supported not just by geopolitical risk but also by genuine tightness in physical supply.

Futures market: As the Strait of Hormuz closure and Middle East supply disruptions widened, the crude futures market again priced in supply risk, with the near-month spread for WTI and Brent futures moving back into backwardation, signaling markedly higher market concern about near-term crude supply. The IEA notes that July's sharp price swings mainly reflected the interaction between geopolitical developments and tightness in crude and refined product supply; as usable inventories fall quickly, the market's sensitivity to near-term supply has risen further, keeping crude price risk elevated.

Crude supply and demand: The IEA sharply cut its 2026 global oil supply-demand outlook. On demand, with the Strait of Hormuz still closed and high oil prices curbing consumption, the IEA now expects global oil demand to fall by 1.6 million barrels per day in 2026, a further downward revision of 510,000 barrels per day from last month — with demand down 4.9 million barrels per day year-on-year in Q2, the decline narrowing to 2.8 million barrels per day in Q3, before returning to growth in Q4; 2027 demand growth is forecast at 2.4 million barrels per day. On supply, global oil supply rose 2.4 million barrels per day in July to 101.5 million barrels per day, but was still 6.3 million barrels per day lower than a year earlier; the IEA estimates global supply will average down 4.3 million barrels per day in 2026, before rebounding 8.3 million barrels per day to 110.3 million barrels per day in 2027. Due to the supply disruption, the global oil market is now estimated to face a supply gap of 1.8 million barrels per day in Q3 2026, up from last month's estimate of 800,000 barrels per day.

Inventories and refined product markets: Global oil inventories are falling rapidly — observed global oil inventories fell by a sharp 69 million barrels in July, or about 2.2 million barrels per day, dropping to below 7.9 billion barrels by the end of July; cumulative declines from late February to late July totaled about 410 million barrels, averaging a 2.7 million barrel-per-day draw. The supply disruption has also tightened the refined products market: global refinery crude throughput in July rose 1.8 million barrels per day from the prior quarter, but was still down nearly 5 million barrels per day year-on-year at 80.9 million barrels per day. Disruptions to Middle East refined product exports, attacks on Russian refineries, and tightening supplies of diesel, jet fuel, and gasoline have all pushed crack spreads and refining margins sharply higher. The IEA estimates global refinery throughput will fall by 2.5 million barrels per day in 2026 before rebounding 3.5 million barrels per day in 2027.

Summary: The core signal in this month's IEA report is "worsening supply shock, weakening demand, rapid inventory depletion." The continued closure of the Strait of Hormuz is holding back the recovery of global oil supply, with the Q3 supply-demand gap widening to 1.8 million barrels per day, and global inventory buffers falling quickly, making the oil market more sensitive to geopolitical events. Although the IEA expects the market to have a chance of rebalancing supply and demand by year-end, with inventory buffers being depleted quickly, the pace of recovery in the Strait of Hormuz and Middle East supply will be the most important variable for oil prices going forward.

OPEC Monthly Oil Market Report, August 2026

Oil prices: OPEC notes that July crude prices moved in a fall-then-rebound-then-pullback pattern amid mixed geopolitical headlines. The OPEC Reference Basket (ORB) average price fell $6.76 (-7.5%) month-on-month to $82.99/bbl; Brent's average price fell $0.46 (-0.5%) to $83.97/bbl; and WTI's average price fell $2.57 (-3.1%) to $79.22/bbl. Early in the month, prices were under pressure as the market expected a gradual recovery in Middle East supply and a decline in the geopolitical risk premium; but Middle East tensions flared up again in mid-July, and disruptions to regional shipping and CPC Blend supply caused prices to rebound temporarily, before some of that risk premium receded again toward month-end as geopolitical tensions eased.

Futures market: Geopolitical risk and supply concerns significantly amplified crude futures volatility in July, with investors adding to net long positions in crude. Between late June and July 28, combined speculative net long positions in Brent and WTI futures and options rose by about 144 million barrels, with Brent net longs surging 232.7% and WTI net longs rising 15.6%. Over the same period, WTI open interest fell 1.3% and Brent fell 2.1%, showing that while the market added long positions amid rising geopolitical tension, overall capital allocation remained relatively cautious. The Brent near-month/far-month spread widened further into backwardation of $3.17/bbl, reflecting continued high market concern about near-term supply.

Crude supply and demand: OPEC believes crude market fundamentals remain resilient despite falling prices. OECD commercial crude inventories fell 15.3 million barrels month-on-month in June, with product inventories also down 11.1 million barrels; total inventories fell to 2,729 million barrels, 66.5 million barrels below the five-year average, with days of forward cover falling to 58.7 days — signaling the physical market remains tight. Meanwhile, global refinery runs continued to recover, with global refinery intake up 1.4 million barrels per day month-on-month in July and overall refinery utilization exceeding 78%; strong demand for middle distillates and supply disruptions also boosted refining margins, supporting refiners in maintaining higher crude throughput. On the supply side, non-DoC liquids production is estimated to rise 600,000 barrels per day in 2026 to 54.8 million barrels per day, while July DoC crude production rose 1.42 million barrels per day month-on-month to about 37.66 million barrels per day; the increase in supply should gradually ease market tightness.

Global economy: OPEC slightly cut its 2026 global economic growth forecast to 3.0%, while keeping 2027 unchanged at 3.2%; forecasts for the US (2.2% in 2026), China (4.6%), and India (6.6%) were all kept unchanged. On global oil demand, OPEC slightly cut its 2026 demand growth forecast to 600,000 barrels per day, bringing global oil demand to 105.7 million barrels per day; 2027 demand growth was revised up to 2.2 million barrels per day, reaching 107.9 million barrels per day. OPEC also noted that as seasonal maintenance ends and refining capacity gradually recovers, refinery runs will rise further; but winter heating fuel demand and petrochemical feedstock demand will provide fresh support, with OECD heating fuel demand estimated to grow about 70,000 barrels per day year-on-year in Q4 2026, rising to about 100,000 barrels per day in Q1 2027. As a result, near-term oil prices will remain highly volatile due to geopolitical risk, but resilient demand and relatively low inventories will continue to provide fundamental support for prices.

US Crude Data Update

Commercial crude inventories have begun building, and end-use demand has yet to weaken; but with the SPR still being drawn down and the Middle East situation continuing to affect supply and demand, refinery capacity utilization remains at highs

According to the EIA's Weekly Petroleum Status Reports for 8/07 and 8/14, US commercial crude inventories rose from 424.40 million barrels to 428.80 million barrels, following the prior week's sharp build from 407.00 million to 424.40 million barrels — showing commercial crude supply remains relatively ample. The Strategic Petroleum Reserve (SPR), meanwhile, fell from 298.70 million barrels to 293.40 million barrels, extending the prior week's decline from 304.80 million barrels — a second consecutive weekly draw, indicating that the supply shortfall stemming from the Middle East situation has yet to ease. Motor gasoline demand slowed, with inventories edging up slightly from 208.70 million to 209.40 million barrels, a shift to a mild build compared with the prior week's draw from 209.70 million to 208.70 million barrels. Distillate inventories fell from 107.10 million to 105.60 million barrels, extending the prior week's slight decline from 107.20 million barrels, with the pace of drawdown accelerating notably — reflecting strong industrial and freight demand. Separately, the Baker Hughes rig count fell from 445 to 442, after rising from 440 to 445 the prior week, an increase-then-decrease pattern showing shale producers remain cautious for now, with no clear sign of expansion activity. Refinery utilization rose further, from 96.20% to 97.20%, following a rise from 96.10% to 96.20% the prior week, continuing to climb and holding at an extremely high operating level.

Overall, over the past two weeks the US crude market has shown a pattern of consecutive builds in commercial crude inventories, continued draws on the SPR, motor gasoline inventories shifting from a draw to a slight build, and distillate inventories continuing to draw down at an accelerating pace. Although refineries have maintained utilization near 97%, continuing to consume large volumes of crude, commercial crude inventories still rose by 17.40 million and 4.40 million barrels over the past two weeks respectively, due to the effects of imports and the phased recovery of strait-area supply from earlier in the period. In addition, as the summer driving season winds down, a pickup in freight and industrial activity drew distillate inventories down by 1.50 million barrels, reflecting continued improvement in some refined product demand, though gasoline demand has shown a slight stall due to the recent rise in oil prices. Overall, current crude and refined product inventory levels remain relatively low, and overall supply-demand conditions remain sensitive to geopolitical risk; the pace of the straits' recovery will continue to warrant close attention going forward.

Key News and Current Events

As the US-Iran conflict remains locked in a standoff, the Hormuz crisis evolves from a short-term shock into a long-term premium

According to Reuters, the market has begun to see the Strait of Hormuz crisis as a persistent supply risk rather than a short-term disruption. With the US-Iran ceasefire talks deadlocked, the market expects shipping restrictions could last for months, and oil prices have stabilized at around $90/bbl, roughly 50% higher than at the start of the year. Crude and refined product flows through the Strait of Hormuz have fallen from about 18 million barrels per day before the conflict to 4.8 million barrels per day in July, and to only about 2 million barrels per day so far in August; overall Middle East exports have fallen from 21 million barrels per day in 2025 to about 9.5 million barrels per day this month. Beyond supply uncertainty, global refinery runs in July were down nearly 5 million barrels per day year-on-year, observed global oil inventories fell by 2.4 million barrels per day in Q2, and US distillate inventories have hit a 30-year seasonal low, all pointing to continued tightness in the refined products market. Meanwhile, Middle East-to-China VLCC freight rates have risen to about $490,000 per day.

Overall, with both global crude and refined product inventories at relatively low levels, supply and demand have become more sensitive to any disruption. If the Hormuz crisis persists, restricted shipping and falling Middle East crude exports could widen the supply gap further, keeping oil prices elevated or even pushing them higher; even once shipping gradually recovers, the inventory shortfall built up earlier won't disappear immediately, and the market will still need time to rebuild stocks — meaning prices could keep carrying an elevated risk premium. In short, the prolonged US-Iran standoff has transformed what was originally a short-term geopolitical risk event into a persistent, structural supply risk, and market pricing is shifting from reflecting a "short-term shock" to a "long-term supply shortfall," meaning high oil prices could become the norm for some time to come.

Conclusion

Summary of the Three Major Agencies' Monthly Reports

In their August 2026 monthly reports, the EIA, IEA, and OPEC all share the common view that the global oil market is showing "tight near-term supply, rapidly falling inventories, and a gradual mid-term supply recovery." The EIA expects Hormuz restrictions to persist at least through August, with transport gradually recovering from September, and Middle East offline capacity largely restored by early 2027 — though a gap of about 600,000 barrels per day may persist through the end of 2027; as a result, global inventories will still draw down sharply in Q3 2026, with Brent averaging an estimated $85/bbl before falling to $78 in Q4 2026. The IEA is more pessimistic, estimating the Q3 2026 supply gap will widen to 1.8 million barrels per day, with global inventories falling by about 69 million barrels in July alone — showing the market's buffer is shrinking quickly and prices are becoming more sensitive to geopolitics. OPEC is relatively neutral, arguing that low inventories, resilient demand, and strong refining margins still support fundamentals; while gradually rising supply should ease tightness, near-term prices will remain highly volatile. Overall, the core theme for the oil market in the second half of 2026 remains supply disruption and low inventories, with the market only likely to shift toward supply improvement and inventory rebuilding once Middle East capacity recovers in early 2027.

Short-Term Crude Market Summary

The short-term crude market remains dominated by geopolitical risk, with Brent and WTI up 10.72% and 11.41% respectively over the past two weeks, reflecting the collapse of US-Iran talks and restricted passage through the Strait of Hormuz and the Bab el-Mandeb Strait, which continue to add a supply-disruption premium to the market's pricing. Although US commercial crude inventories rose for two consecutive weeks — showing some easing of near-term supply pressure — continued draws on the SPR, falling distillate inventories, and refinery utilization rising to 97.2% show the refined products market remains tight. At the same time, while Saudi Arabia and the UAE have sustained some exports via alternative routes such as the Red Sea and the Suez Canal, limited capacity and sharply higher shipping costs and transit times make it hard to fully offset the shortfall caused by the strait disruptions. As a result, even as inventory builds and alternative supply weigh on prices, near-term oil prices remain elevated and volatile. Overall, with the US-Iran conflict remaining locked in a standoff, the market increasingly views the Hormuz crisis not as a short-term supply shock but as a structural risk that could persist for months, with the oil price premium shifting from reflecting "short-term geopolitical risk" to "long-term supply shortfall."