Oil Market: Third Session of Declines, Brent at $86, WTI at $80
Oil prices continued to fall for the third consecutive day on Wednesday, with Brent decreasing by approximately 3% to $86 per barrel and WTI dropping to $80. On Tuesday, Brent closed below $89, and both benchmarks have lost 8-9% since the beginning of the week. This marks the deepest weekly correction since mid-June when the market was reacting to the first U.S.-Iran memorandum. However, relative to pre-war levels (around $71 at the end of February), Brent is still trading with a premium of around 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 perceived as the first practical step towards increasing transit following the failure of the June memorandum.
- U.S. Sanctions Proving Softer: Washington has not imposed secondary sanctions against Iran's trading partners, limiting itself to a "grace period" and targeted additions to the OFAC lists.
- Signs of De-escalation: The visit of Pakistan's Chief of General Staff to Tehran, continued mediation by Qatar, and reports of the possible return of evacuated American diplomats to the region reduce the likelihood of a new round of strikes.
- U.S. Inventories: According to API estimates, commercial oil inventories increased by 4.2 million barrels for the week ending August 21, against expectations of an increase of 0.6–1.9 million, adding pressure to prices.
The forecast backdrop remains mixed. The U.S. Energy Information Administration (EIA) expects the average Brent price to hover around $85 in the third quarter, while Middle Eastern production continues to decline by approximately 0.6 million barrels per day until the end of 2027. The IEA in its August report projects a decrease in global oil demand in 2026 of 1.6 million barrels per day, followed by a recovery of 2.4 million barrels per day in 2027; global observed inventories fell by 69 million barrels in July, and 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 remain at record levels, indicating that the physical market for oil products is significantly tighter than what Brent prices suggest.
Strait of Hormuz: Temporary Corridor Iran — Oman and Demining Project
The main news of the week came from Tehran. Following the visit of Oman's Foreign Minister Badr al-Busaidi to his Iranian counterpart Abbas Araghchi, the parties announced the agreement on a "phased framework" that could serve as a practical basis for the resumption of safe maritime navigation. The document includes:
- Establishment of a temporary joint navigation corridor through the Strait of Hormuz;
- A joint project to clear the strait of mines;
- Continuation of technical negotiations on a permanent corridor, future administration of the strait, information sharing, traffic management, and provision of navigation and security services;
- Inclusion of other Gulf Cooperation Council states in the dialogue.
Iran's Deputy Foreign Minister Kazem Garibabadi clarified that the incoming route into the Persian Gulf will pass entirely through Iranian waters, while the outgoing route will traverse both Iranian and Omani waters; additional negotiations are expected to take 30–60 days. Al-Busaidi expressed hope that the corridor would be announced "in the near future." Two conditions are critical for the market. First, the U.S. still insists on the freedom of navigation along the southern route adjacent to Oman under the protection of the Navy, rather than under Iranian traffic control. Second, the mention of demining contradicts recent statements from Washington claiming that mines have already been cleared, although the U.S. side reported demining of the central section of the strait. Risks persist: on Tuesday, the British center UKMTO reported an attack on a tanker by an unidentified projectile near the Omani coast close to the strait entrance. Before the war, around 20 million barrels per day of oil and oil products passed through Hormuz; industry analysts estimate that the market is still missing around 8 million barrels per day.
U.S. Sanctions: “Economic Outlier” Without Secondary Measures for Now
The campaign "Operation Economic Outlier," announced by the U.S. Treasury on August 24, was presented as an "economic D-Day," but its first phase has proven to be more of a warning. The sectoral definitions affected digital assets, technology, gold, aviation, and maritime transport, with about 60 legal entities, individuals, and vessels connected to Iranian oil exports added to the OFAC lists. However, no secondary sanctions against partner countries have been introduced: Secretary Scott Bessent speaks of a "grace period" and individual timelines for specific states, refusing to name them or set deadlines. A decision regarding an unnamed financial institution is promised by the end of the week.
The reaction from counterparties is telling. 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, as the country had previously accumulated foreign currency reserves. A key question for the oil market is whether the administration will impose sanctions on Chinese banks ahead of the anticipated visit by Xi Jinping. So far, the market is pricing in that it will not.
U.S. Inventories: SPR Nearing Operational Minimum
The API report for the week ending August 21 was a cold shower for the bulls. Against the backdrop of a 4.2 million barrel increase in oil inventories, gasoline stocks decreased by 3.2 million, distillates by 0.5 million, and inventories at Cushing rose by 1 million. The strategic reserve saw an additional 3.7 million barrels leave, bringing it down to 289.7 million, closely approaching the generally accepted operational minimum of 250-300 million. According to the latest official EIA data, commercial oil inventories were at the five-year average, while gasoline stocks were 5% below and distillates 13% below normal levels. The official EIA statistics for the reporting week were released on Wednesday evening, which will determine if such a significant increase is confirmed.
OPEC+: Quota Increase Paused, Monitoring on September 6
The September quota increase of 188,000 barrels per day concluded the reversal of voluntary cuts in 2023 totaling 1.65 million barrels per day. Seven coalition countries (Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, Oman; the UAE exited OPEC in May) will meet on September 6, with the baseline market scenario suggesting a pause for the fourth quarter while preparing for discussions on quotas for 2027, where Iraq seeks a "fair share." Due to export restrictions in the Gulf, Russia, and Kazakhstan, paper increases in quotas this year barely reached the physical market, so with the actual opening of Hormuz, the coalition will need to manage a potential surplus.
Gas and LNG: TTF Retreats from €68, EU Gas Stocks at 63%
The European gas market remains the most vulnerable segment of the energy sector, but even here a respite has emerged. TTF futures fell below €67/MWh after reaching a high of €68.46 on Monday — the highest level since January 2023. The drop reflects hopes for de-escalation and the absence of a physical blow to supplies from the new U.S. sanctions. However, the fundamental picture has remained unchanged:
- Inventories: EU gas storage is approximately 63% full against a seasonal norm of about 80%; the target for November 1 has been lowered from 90% to 80%, and the current injection rate allows for only ~80–81%.
- Qatari LNG: The return to a full shipping schedule to Europe is unlikely before the beginning of the fourth quarter considering the demining timelines.
- Norway: Equinor launched the second stage 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 covering about 10% of European demand, but does not add new resources.
- Asia: Spot LNG JKM remains around $21–22/MMBtu, while the spread with American Henry Hub (below $3/MMBtu at record production in the U.S.) continues to justify the wave of investments in export terminals.
Electricity and Renewables: Heat, Storage, and Growth in Solar Share
The summer season of 2026 confirms that the energy transition is accelerating, but the grids remain under stress. In Japan, wholesale electricity prices have reached their highest since 2023 due to heat and increased cooling demand. In the U.S., according to EIA, solar generation grew by 21% in the first half of the year, hydro by 9%, wind by 6%, while coal production decreased by 11%; in the second half of the year, hydropower is expected to decrease by 3% due to drought conditions in the West. Ember notes that in 2025 renewables surpassed 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 battery storage installations to 250 GWh. The IEA reminds us that coal will remain the largest single source of electricity for at least until 2030, and the Gulf war has temporarily restored its competitiveness in Europe and Asia due to expensive gas.
Coal: Newcastle Above $131 — Three-Week High
Energy coal in Newcastle has risen to $131–132 per ton, an 18% increase compared to one year ago, driven by heat in Japan, signals of incentives in China, and a continued switch from gas to coal. European ARA trades around $122/ton, while Australian coking coal is about $236/ton. The EIA has raised its forecast for coal exports from the U.S. for 2026 to 102 million short tons. China is focusing on consolidation and "intellectualization" of mines during its new five-year plan while aggressively closing outdated capacities, which limits the elasticity of supply.
Russia: Diesel Export Ban Extended at Least Until the End of September
According to industry sources, the Russian government plans to extend the complete ban on diesel fuel exports, which has been in place since early July and expires on August 31, for at least until the end of September, with discussions about a potential extension until the end of the year. The gasoline export ban will remain in effect until January 31, 2027, and the jet fuel ban until the end of November. Fuel shortages have resurfaced in certain regions in August after a brief respite; to saturate the market, Russia is importing petroleum products from Asia and Belarus, while Deputy Prime Minister Alexander Novak reports several refineries exiting unplanned 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 for Urals remained significantly above the G7 price cap of $44.10 at around $60.
What to Watch on August 27: Calendar for Energy Market Participants
- Official announcement of the temporary corridor Iran — Oman and U.S. reaction to the scheme with Iranian control of the incoming route.
- U.S. Treasury promised decision regarding the financial institution and initial "deadlines" for Iran's partner countries.
- Results of the EIA report on oil and petroleum product inventories in the U.S. and SPR dynamics.
- Investigation into the attack on the tanker off the coast of Oman, insurers' and shipowners' positions.
- Injection into EU gas storage and TTF remaining below €67/MWh.
- Signals from OPEC+ delegations ahead of the September 6 meeting.
- Government decision regarding diesel export ban timelines.
Conclusion: The oil market has for the first time in a month received a documented reason for reducing the geopolitical premium; however, between the statement about the corridor and the actual increase in transit through the Strait of Hormuz lie demining, route agreements with the U.S., and 30–60 days of technical negotiations. The European gas market enters the heating season with inventory shortages, while coal and renewables are increasing their positions in global electricity generation. Daily analytics on the energy sector can be found in the Open Oil Market Telegram channel.
