Oil Market: Brent at $88–89 Amid Supply Shortages and Record Stock Growth in the U.S.
On Thursday morning, Brent is trading around $88 per barrel, while WTI is approximately $83, with quotes dropping more than $1 following downscaled global demand forecasts. The previous day, the international benchmark closed at $88.98, briefly reaching $89.50 — around 24% above the levels prior to the start of the U.S.-Israeli military campaign against Iran in late February. The oil market is being pulled in different directions by various factors:
- Supply Shortage: According to the latest monthly report from the IEA, the global oil market is facing a shortfall of about 1.8 million barrels per day in the third quarter due to the conflict in the Middle East and restricted shipping through the Strait of Hormuz.
- Record Growth of U.S. Inventories: EIA data revealed a surge of 17.4 million barrels in commercial crude oil inventories over the week — the largest weekly increase since the beginning of 2023, which has tempered the enthusiasm of bulls.
- Widening Brent-WTI Premium: Middle Eastern disruptions are having a stronger impact on barrels tied to Brent, while U.S. production remains shielded from logistic risks in the region.
- Speculative Positioning: Fund managers have been reducing net long positions in Brent and WTI for the second consecutive week, taking profits amid the uncertainty in negotiations.
Hormuz Crisis: U.S. and Iran Negotiations at Impasse, Attacks on Shipping Continue
Geopolitics remain the primary price driver for oil and gas. Negotiations regarding the unblocking of the Strait of Hormuz have come to a standstill: Washington claims "full control" over the waters and is increasing pressure on Tehran by expanding sanctions and the naval blockade of Iranian ports. Simultaneously, the escalation has spread to the Red Sea: a Houthi attack on a cargo vessel in the Bab-el-Mandeb Strait resulted in the deaths of six sailors — the first casualties among crews in over a year, while U.S. forces launched a missile strike on a container ship in the Gulf of Oman. Nevertheless, dialogue channels remain open: negotiations between Iran and Oman regarding a phased reopening of the strait are reportedly progressing, and it is on these expectations that Brent is being held below $90 rather than above $100. Any substantial progress could quickly alleviate some of the military premium; conversely, a breakdown in communication threatens a new surge in oil and LNG prices.
OPEC+: Final Quota Increase and Pause Until Year-End
The OPEC+ alliance approved the final quota increase of the current series — by 188,000 barrels per day from September, completing the return of 1.65 million barrels per day of voluntary cuts made in 2023. The decision is largely symbolic: actual production and exports from the Persian Gulf countries are significantly lagging behind quotas due to military risks, damaged infrastructure, and logistical constraints. Analysts' baseline scenario foresees a pause in quota changes in the fourth quarter and a transition to complex negotiations regarding production baselines for 2027, which are expected to be tense amid the UAE's exit from the organization in May. The next meeting of key participants is scheduled for September 6.
Gas Market: Europe Faces Record Low Storage Levels Ahead of Winter
The European gas market is the second most significant topic of the day. Prices at the TTF hub, after a surge of over 10% at the beginning of the week, are currently holding in the range of €58–62 per MWh — approximately double the levels at the start of the year. Factors contributing to the tension include:
- EU gas storage levels are around 55–57% full — about 22 percentage points lower than the five-year average and at a record low for the season since monitoring began in 2009.
- LNG deliveries from Qatar through the Strait of Hormuz are experiencing interruptions, and competition with Asia for spare liquefied natural gas cargoes is intensifying.
- An accident at Norway's Ormen Lange field with repairs extended until February 2027 is removing over 1 billion cubic meters from the market during the heating season.
- The heat in Europe is supporting electricity demand for air conditioning, increasing gas consumption in generation.
Brussels has already lowered the mandatory storage filling target from 90% to 80% by November 1, but even this is in question given the current injection rates. Commerzbank has raised its end-of-year gas price forecast to €50/MWh, while Uniper expects a range of €50–60 as long as the strait remains closed. For Europe's industrial and energy sectors, this implies an expensive winter and the continuation of a risk premium in prices for the entire 2026–2027 horizon.
Sanction Pressure on Russia: New Package in the U.S. Congress
The U.S. House of Representatives is considering a bipartisan sanctions package targeting Russia's energy revenues, banking sector, and networks for circumventing restrictions, threatening increased tariffs for the largest buyers of Russian energy commodities. For the global oil market, this introduces further uncertainty: a tightening of secondary sanctions could reshape the flow of Russian oil and oil products to Asia and widen Urals discounts, while India and China continue to balance between advantageous purchases and the risk of trade restrictions from Washington.
Russian Fuel Market: Fuel Embargo Extended, Priority on Domestic Market
The domestic fuel market in Russia remains under tight management following drone attacks on refineries and a summer surge in demand. The government has extended the full ban on automotive gasoline exports until January 31, 2027; restrictions on the export of diesel fuel, marine fuel, and gas oils are in effect until the end of August, while from September 1, direct diesel producers will be able to resume supplies abroad. Additionally, a special procedure for fuel supply to farmers is in place amid the peak harvesting season until November 1. Authorities estimate that the market has started to stabilize partially, although in some regions, the gasoline situation remains tense. For the global refined product market, the extension of the Russian embargo means a reduced export offer of diesel and supports crack spreads at refineries in Europe, the Middle East, and Asia.
Power Sector and Renewables: Renewables Surpass Coal for the First Time
The global energy transition is reaching a historic milestone in 2026: according to the IEA forecast, renewable generation will for the first time exceed that of coal and become the largest source of electricity worldwide. Global electricity demand is projected to increase by 3.6% in 2026 and by 3.8% in 2027 — to about 30,700 TWh, driven by the electrification of transportation and industry, air conditioning, and rapid expansion of data centers for artificial intelligence. Solar energy will add around 600 TWh of output per year and surpass wind, becoming the second-largest renewable source after hydroelectricity. In the EU, the share of coal in generation will drop below 10% for the first time in over a century, while the share of low-carbon electricity is expected to approach 76% by 2027. Demand in China is expected to rise by around 5.5%, while India’s demand will grow by 7%. An additional trend is energy for AI: billions are being invested in storage, small modular reactors, and grid infrastructure, while European generators, including nuclear power plants, are raising their annual forecasts amid high electricity prices.
Coal: The Paradox of Energy Transition and Data Center Demand
Despite the records in renewables, coal demonstrates resilience where electricity demand is growing the fastest. In the U.S., coal generation surged by 13% last year — data centers and expensive gas brought coal-fired power plants back into operation and slowed their decommissioning. In contrast, in China and India, coal output is declining due to the record addition of solar and wind capacity — for the first time in five decades, both countries have shown synchronized reductions. Overall, global coal consumption is plateauing: the IEA expects a moderate decline in coal generation through 2030 while maintaining its significant role in Asia’s energy balance.
What This Means for Investors: Key Indicators for the Coming Weeks
The energy market remains a geopolitical arena. The baseline scenario is to keep Brent within the $85–92 per barrel range with the Strait of Hormuz closed, with asymmetric upside risks in case of a breakdown in negotiations and potential correction to $80 and below if dialogue between the U.S. and Iran breaks through. Investors and fuel market participants should monitor:
- the progress of Iran and Oman’s negotiations regarding the phased opening of the Strait of Hormuz and Washington's rhetoric;
- the pace of gas injection into European storage facilities and TTF dynamics ahead of the heating season;
- the OPEC+ meeting on September 6 and early signals regarding 2027 quotas;
- the fate of the U.S. sanctions package against Russia’s energy sector and the reactions from India and China;
- weekly EIA reports on U.S. oil and refined product inventories;
- electricity demand statistics from data centers as a new structural driver for gas, coal, nuclear, and renewables.
Energy markets are experiencing one of the most intense periods in recent years: the military premium in oil, record-low gas stocks in Europe, and a historic shift in global generation are forming a new configuration in the energy sector, where volatility becomes the norm and energy security is the top priority for governments and companies worldwide.
