fiisual Biweekly Oil Report : Middle East Tensions Persist as Energy Supply Risk Spreads from Crude to Refined Products

Price Trend Summary

Aug 24–29: Prices pulled back early on Iran-Oman talks, then rebounded late as US-Iran negotiation hopes faded

Early in the week, prices on 8/24 were mainly pressured by profit-taking after a rapid rally, along with expanded US economic sanctions on Iran. However, the market judged that the sanctions were unlikely to trigger immediate military escalation and instead raised the odds of easing tensions through future diplomacy, so the geopolitical risk premium eased. On 8/25 the market began betting that Iran and Oman were negotiating over navigation through the Strait of Hormuz and discussing a temporary shipping corridor. Traders expected that a gradual reopening of Hormuz would boost Gulf crude exports and ease the global supply shortfall, so prices fell further as this improvement was priced in early. On 8/26, as Iran and Oman kept advancing a Hormuz agreement, expectations of a shipping recovery strengthened further, and prices briefly touched their lowest level since mid-August. However, since actual vessel transits remained below normal levels, the market judged that supply had not truly recovered, and combined with fairly neutral US crude inventory data, the price decline ultimately narrowed considerably.

Mid-week, US-Iran diplomatic progress stalled, lowering market expectations for a near-term deal to restore Hormuz transit. Reports that the Trump administration was unwilling to revive the agreement reached with Iran in June pushed geopolitical risk — which had eased on earlier diplomatic progress — back up. The market accordingly expected the timeline for restoring normal Hormuz transit to be pushed back, extending the duration of the supply disruption. Compounding this, Houthi activity showed no clear signs of cooling this week: on 8/24 the Houthis claimed an attack on a vessel near Yanbu, Saudi Arabia, and Reuters reported that Red Sea shipping had continued to be disrupted since the Houthis announced a blockade on Saudi-linked vessels in July. Even as hope for a Hormuz recovery emerged, the market still had to weigh the impact of Red Sea route disruptions — vessel rerouting, longer voyages, and higher shipping costs — which helped push Brent and WTI higher.

Late in the week, an improvement in energy-vessel transits through the Strait of Hormuz, together with earlier reports that a deal to reopen shipping might be reached, again lifted expectations for a crude supply recovery. On the other hand, hawkish comments from Fed Chair Kevin Warsh raised market expectations for further rate hikes, which could dampen economic activity and crude demand. The combination of improving supply and weakening demand expectations pushed oil prices down slightly by week's end.

Aug 31–Sep 04: US-Iran conflict escalates again, driving prices back to highs as Brent breaks above $95

Early in the week, oil prices rebounded sharply starting 8/31 as US-Iran military conflict flared up again: after the US struck Iran-related military facilities, Iran retaliated, reviving market concerns about the safety of shipping through the Strait of Hormuz. On 9/1 prices hit roughly a five-week high as the US-Iran military conflict widened and Iran threatened to restrict Gulf crude exports, further heightening market concern. On 9/2 prices extended their gains as the US and Iran engaged in another round of large-scale military exchanges — the US struck targets in southern Iran while Iran struck US bases in the region — deepening concerns about Hormuz supply. That day's US commercial crude inventory data showed a weekly draw of about 4.5 million barrels, a much larger decline than the market expected, lending further support to prices at elevated levels.

In the middle and latter part of the week, prices swung sharply at elevated levels. Reuters noted that the US government believes some Middle East crude shipments have gradually resumed, but vessel-tracking data showed that actual transit volumes through the Strait of Hormuz remained far below normal, leaving the market torn over whether supply had really fallen sharply. In addition, news related to Russia-Ukraine peace talks capped price gains and triggered some profit-taking. Only 4 cargo vessels transited the Strait of Hormuz on 9/3, far below the 10-day average of roughly 15, showing that shipping risk had not truly been resolved. On the Red Sea side, Houthi threats to Red Sea and Bab el-Mandeb shipping continued: the number of vessels transiting the Bab el-Mandeb Strait fell from 31 on the previous day to 22 on 9/4, below the 10-day average of 24, and market concern over risk to this second energy export channel has not eased. Separately, beyond the escalating US-Iran conflict, Ukrainian strikes on Russian refining facilities further raised global refined-product supply risk. The average US diesel price rose to a historic high of about $5.85 per gallon, reflecting a market focus that has gradually broadened from a pure "crude supply" issue to a dual pressure of "refining capacity and refined-product supply."

US Crude Data Update

Crude inventories swing to a draw, SPR keeps falling — the buffer in US oil supply continues to narrow

According to the EIA's Weekly Petroleum Status Reports released on 8/26 and 9/02, US commercial crude inventories fell from 428.9 million barrels to 424.5 million barrels. Combined with the prior week's marginal build of only 0.1 million barrels, this points to tightening crude supply. The Strategic Petroleum Reserve (SPR) fell from 289.7 million barrels to 286.6 million barrels, extending the prior week's 3.7-million-barrel decline — a second consecutive weekly draw — reflecting that shipping disruptions and supply interruptions stemming from the Middle East situation continue to draw down the strategic reserve, further reducing overall crude supply flexibility. Motor gasoline inventories fell from 206.8 million barrels to 205.7 million barrels, extending the prior week's 2.5-million-barrel draw, though the pace of drawdown slowed noticeably. Distillate inventories rose from 103.4 million barrels to 104.2 million barrels, switching from the prior week's 2.2-million-barrel draw to a modest build, suggesting demand for diesel and other middle distillates has eased somewhat. Separately, the Baker Hughes rig count rose from 447 to 449, indicating shale producers have kept drilling activity relatively stable recently without significant expansion. Refinery utilization rose further from 97.4% to 98.0%, extending the prior week's 0.2-percentage-point increase and remaining at an extremely high operating level — continuing to support crude processing demand while also reflecting that refiners remain under heavy load.

Overall, the recent US oil market shows a pattern of "crude switching from a build to a draw, refined-product drawdown momentum slowing, and refiners running at high utilization." Commercial crude inventories fell by 4.4 million barrels this week, showing that with refinery utilization at 98.0%, crude consumption has again outpaced the increase in supply; combined with the continued SPR decline, this indicates that part of the supply pressure still needs to be buffered by releasing strategic reserves. On the refined-product side, gasoline inventories continued to draw down but at a smaller pace than the prior week, while distillates switched from a draw to a build, suggesting the summer demand peak is gradually winding down and end-demand is beginning to diverge. On the whole, pressure on the Middle East supply side continues to build — particularly with shipping disruptions and a declining strategic reserve — further narrowing the buffer in usable US crude supply. If key transit routes such as the Strait of Hormuz fail to return to normal, the subsequent tightening of Middle East crude supply could intensify further, continuing to raise the oil market's sensitivity to geopolitical risk.

Key News and Current Events

Middle East situation: US-Iran standoff persists, Red Sea tensions show no clear cooling, transits through both straits remain low, and the energy-market impact is spreading from crude to refined products, natural gas, and electricity

The US-Iran conflict has continued for nearly six months with neither side showing a clear willingness to back down, keeping market expectations for a long-term restriction on the Strait of Hormuz elevated. The energy market has also begun shifting its assessment from an original "short-term supply shock" toward a more structural supply risk. The Strait of Hormuz normally carries about one-fifth of global oil and LNG shipments, but actual transit volumes remain at extremely low levels, keeping Brent crude above roughly $90 a barrel and pushing it as high as $95 in the past week. At the same time, buffers that were originally available to absorb the supply gap — global inventories and non-Middle East production increases — have been steadily consumed, markedly raising the market's sensitivity to further supply disruptions. Notably, the crisis's impact is no longer confined to the crude side: refining capacity and refined-product supply are increasingly becoming a new bottleneck, as roughly one-fifth of Middle East refining capacity has been affected, tightening the global gasoline and diesel markets in tandem. As a result, even if crude flows through the Strait of Hormuz recover in the future, higher crude supply may not immediately translate into more refined-product supply, and the time needed to repair refineries could keep fuel prices elevated for longer. Separately, shipping disruptions in the Red Sea and Bab el-Mandeb Strait are also spreading energy-transport risk further — even if Hormuz recovers, the Red Sea could still become the next energy-transport bottleneck. Crude exports through the Strait of Hormuz and overall Gulf crude exports in August were both notably below normal levels, and Qatar Energy has even extended force majeure on LNG deliveries to European customers through November due to the war — showing that supply constraints have gradually spread from crude to LNG and could further transmit to the electricity market via natural gas and fuel costs.

Commentary: The market's focus is no longer just on whether the US and Iran will negotiate or reach a ceasefire, but on how many vessels can actually transit the strait, how much crude can actually leave production areas, and how much refining and energy infrastructure remains damaged. This represents a shift in crude-market pricing logic — from relying on negotiation headlines and geopolitical statements to verifying whether supply has actually recovered based on real vessel-transit numbers and energy flows. Geopolitical risk is also spreading from the crude side to refined products, natural gas, and the electricity market, gradually transforming this crisis from a simple oil-price risk premium into a broader risk premium across the global energy supply chain.

Preview of the Three Major Monthly Reports

🗓️ 09/09 (Wed) 05:30 USA EIA Short-Term Energy Outlook, September

In its August report, the EIA expected the Strait of Hormuz to remain severely constrained through August, with transit volumes gradually recovering from September, Middle East shut-in capacity largely restored by early 2027, and a gap of roughly 600,000 barrels/day persisting through the end of 2027. However, the recent renewed escalation in US-Iran tensions and continued weak Hormuz transit volumes put the supply-recovery timeline at risk of being pushed back further. This month's report bears watching for whether the EIA further downgrades Middle East supply, and whether the Hormuz recovery timeline and the production gap are pushed back and widened in tandem.

🗓️ 09/10 (Thu) 19:00 Global OPEC Monthly Report, September

In its August report, OPEC maintained a relatively optimistic view, judging global oil demand to be resilient and expecting increased non-DoC supply to gradually ease market tightness, with demand growth in 2027 expected to accelerate further. However, the recent deterioration of the Middle East situation, with shipping risk rising in tandem across the Strait of Hormuz and the Bab el-Mandeb Strait, could offset the effect of higher supply. This month's report bears watching for whether OPEC downgrades its supply-growth forecast, and whether geopolitics and low inventories prompt it to reassess the supply-demand balance and price support.

🗓️ 09/11 (Fri) 16:00 EU IEA Oil Market Report, September

In its August report, the IEA estimated that the global oil market supply gap would widen to 1.8 million barrels/day in Q3 2026, with global inventories drawing down rapidly, though it still expected the market to gradually rebalance by year-end. With the recent escalation of Middle East conflict and continued restrictions on Hormuz transit, the duration of the supply disruption could exceed prior expectations. This month's report bears watching for whether the Q3 supply gap widens further, whether the pace of global inventory drawdown accelerates, and whether the timeline for reaching supply-demand balance slips from year-end into 2027.

Conclusion

Short-Term Crude Market Summary

Overall, the recent crude market has shown a pattern of "persistent geopolitical escalation, widening supply risk, rapid inventory drawdown, and oil prices swinging at elevated levels." In late August, prices were at times pressured by US-Iran talks and expectations of a Hormuz transit recovery, but after entering September, the US-Iran conflict escalated again, actual Hormuz transit volumes remained far below normal, and continued Houthi disruption of Red Sea and Bab el-Mandeb shipping put both of the world's two major energy-transport channels at risk simultaneously. Tightness on the supply side has also begun showing up in physical markets: US commercial crude inventories fell by about 4.5 million barrels in a single week, refinery utilization rose to 98%, and the SPR continues to draw down, showing that the available supply buffer is steadily narrowing. Notably, supply pressure has extended beyond crude to diesel, jet fuel, and LNG, and damaged refining facilities combined with shipping restrictions could keep energy prices elevated for longer. Going forward, the oil market's focus will extend beyond negotiation headlines to actual transit volumes through the Strait of Hormuz and the Bab el-Mandeb Strait, the timeline for restoring Middle East shut-in capacity, and changes in global inventories. In addition, the EIA, IEA, and OPEC monthly reports are due out this month — if all three institutions simultaneously push back their supply-recovery timelines and widen their supply-gap estimates, the market could shift further from pricing a "short-term geopolitical risk premium" toward reflecting medium-term structural supply tightness, and the pattern of oil prices swinging at elevated levels could persist into the fourth quarter.