Oil Market: Third Session of Decline, Brent at $86, WTI at $80
Oil prices continued to fall on Wednesday for the third consecutive day: Brent decreased by approximately 3% to $86 per barrel, while WTI fell 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 reacted to the first U.S.-Iran memorandum. However, compared to pre-war levels (around $71 at the end of February), Brent is still trading at a premium of about 20%.
Key Price Drivers as of August 27
- Diplomacy Over the Strait of Hormuz: The joint statement from Tehran and Muscat about a temporary corridor is perceived as the first practical step towards increasing transit following the failure of the June memorandum.
- U.S. Sanctions Being Softer: Washington did not impose secondary sanctions against Iran's trading partners, opting for a “correction period” and targeted listings on the OFAC.
- Signs of De-escalation: The visit of Pakistan's Chief of Army Staff to Tehran, continued Qatari mediation, and reports of the possible return of evacuated U.S. diplomats to the region reduce the likelihood of a new round of strikes.
- U.S. Inventories: According to API estimates, commercial oil inventories rose by 4.2 million barrels in the week ending August 21, against expectations of an increase ranging from 0.6 to 1.9 million, adding pressure to the prices.
The outlook remains mixed. The U.S. Energy Information Administration (EIA) expects an average Brent price of around $85 in the third quarter and anticipates a decline in Middle Eastern production of about 0.6 million barrels per day through the end of 2027. The IEA's August report estimates a decrease in global oil demand in 2026 of 1.6 million barrels per day, followed by a recovery of 2.4 million in 2027; observed global stocks fell by 69 million barrels in July, while refinery throughput remains nearly 5 million barrels per day below last year's levels. Diesel and jet fuel crack spreads in the Atlantic Basin remain at record levels, indicating that the physical market for oil products is notably tighter than Brent prices suggest.
Strait of Hormuz: Temporary Corridor Iran — Oman and Mine-Clearing 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 may serve as a practical foundation for the resumption of safe shipping. The document includes:
- Establishment of a temporary joint navigation corridor through the Strait of Hormuz;
- A joint project for mine-clearing of the strait;
- Continuation of technical negotiations regarding a permanent corridor, future administration of the strait, information sharing, traffic management, and provision of navigational and security services;
- Involvement of other Gulf Coast states in the dialogue.
Iran's Deputy Foreign Minister Kazem Garibabadi specified that the incoming route into the Persian Gulf will entirely pass through Iranian waters, while the outgoing route will traverse both Iranian and Omani waters; additional negotiations will take 30-60 days. Al-Busaidi expressed hope to announce the launch of the corridor “in the near future.” Two reservations are crucial for the market. First, the U.S. continues to insist on freedom of navigation along the southern route along Oman under the protection of the Navy, rather than under Iranian traffic control. Second, the mention of mine-clearing contradicts recent statements from Washington indicating that mines have already been removed, although the American side reported on the clearance of the central section of the strait. Risks persist: on Tuesday, the UKMTO reported an unidentified projectile striking a tanker off the Omani coast near the entrance to the strait. Prior to the war, about 20 million barrels per day of oil and oil products passed through Hormuz; according to industry analysts, the market is still missing approximately 8 million barrels per day.
U.S. Sanctions: “Economic Pariah” Without Secondary Measures for Now
The campaign “Operation Economic Pariah” announced by the U.S. Treasury on August 24 was presented as an “economic D-Day,” but its first phase has turned out to be a warning. Sectoral definitions touched digital assets, technologies, gold, aviation, and maritime transportation, with around 60 entities, individuals, and vessels related to Iranian oil exports added to the OFAC lists. However, secondary sanctions against partner countries have not been introduced: Secretary Scott Bessent speaks of a “period for correction” and individual timelines for specific states, refusing to name them or indicate deadlines. A decision regarding an unnamed financial institution is promised by the end of the week.
The response from counterparties is telling. The UAE recently announced a halt to 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 exchange 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. The market is currently pricing in that there will be none.
U.S. Inventories: SPR Approaches Operational Minimum
The API report for the week ending August 21 served as a cold wake-up call for bulls. Amid the 4.2 million barrel increase in oil stocks, gasoline inventories decreased by 3.2 million, distillates by 0.5 million, and inventories at Cushing increased by 1 million. From the Strategic Reserve, another 3.7 million barrels were released this week, down to 289.7 million, which is close to the widely accepted operational minimum of 250-300 million. According to the latest official data from the EIA, commercial oil stocks are at the five-year average level, gasoline stocks are 5% below the norm, and distillates are 13% below average. The official EIA statistics for the reporting week were released on Wednesday evening and will determine whether such a large increase is confirmed.
OPEC+: Quota Increase Paused, to Be Reviewed on September 6
The September quota increase of 188 thousand barrels per day marks the end of the voluntary reductions of 2023 amounting to 1.65 million barrels per day. Seven member countries of the alliance (Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, Oman; the UAE exited OPEC in May) will convene on September 6, with the market's baseline scenario being a pause in the fourth quarter as preparations begin for negotiations 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 have not substantially reached the physical market, so with the real opening of Hormuz, the alliance will need to manage a potential 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 emerged here as well. TTF futures slipped below €67/MWh after peaking at €68.46 on Monday — the highest level since January 2023. The decline reflects hopes for de-escalation and a lack of physical impact on supply from new U.S. sanctions. However, the fundamental picture has not changed:
- Inventories: EU gas storage is filled to about 63% against a seasonal norm of around 80%; the target level for November 1 has been reduced from 90% to 80%, and the current injection pace allows for reaching only ~80-81%.
- Qatari LNG: The full shipping schedule back to Europe is unlikely to resume before the start of the fourth quarter given the mine-clearing timelines.
- Norway: Equinor launched the second stage of Troll Phase 3 on August 22, months ahead of schedule, accelerating the extraction of 55 billion cubic meters; this supports exports from the field covering about 10% of European demand but does not add new resources.
- Asia: Spot LNG JKM remains around $21-22/MMBtu, with the spread from the American Henry Hub (below $3/MMBtu amid record output in the U.S.) continuing to justify a wave of investments in export terminals.
Electric Power and Renewables: Heat, Storage, and Rising Share of Solar
The summer of 2026 confirms that the energy transition is accelerating, yet networks remain under stress. In Japan, wholesale electricity prices reached their highest since 2023 amid heat and increased cooling demand. In the U.S., according to the EIA, solar generation in the first half of the year increased by 21%, hydro by 9%, wind by 6%, while coal output decreased by 11%; in the second half of the year, a 3% drop in hydro generation is expected due to drought conditions in the West. Ember reports that in 2025, renewables surpassed coal for the first time in the global balance (33.8% versus 33.0%), while battery costs fell by 45% with an increase in storage deployment of 46% to 250 GWh. The IEA 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 through expensive gas.
Coal: Newcastle Above $131 — Three-Week High
Energy coal in Newcastle rose to $131-132 per ton, 18% higher than a year ago, amid heat in Japan, signals of stimuli in China, and a continuing shift from gas to coal. European ARA is trading at around $122/ton, while Australian coking coal is approximately $236/ton. The EIA has upgraded the coal export forecast from the U.S. for 2026 to 102 million short tons. In its new five-year plan, China is focusing on the consolidation and “intellectualization” of mines with strict closures of outdated capacities, which limits supply elasticity.
Russia: Diesel Export Ban Extended at Least Until End of September
Industry sources indicate that the Russian government plans to extend the full ban on diesel fuel exports, which has been in place since early July and is set to expire on August 31, at least until the end of September, with discussions also considering an extension through the end of the year. The ban on gasoline exports remains until January 31, 2027, and on 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 emerging from unscheduled maintenance. 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 remained significantly above the G7 price cap of $44.10 at about $60.
What to Watch on August 27: Calendar for Energy Sector Market Participants
- Official announcement of the temporary corridor Iran — Oman and the U.S. response to the scheme involving Iranian control of the incoming route.
- Promised U.S. Treasury decision regarding the financial institution and initial deadlines for Iran's partner countries.
- Results of the EIA report on oil and oil product inventories in the U.S. and SPR dynamics.
- Investigation of the attack on a tanker off the coast of Oman, the stance of insurers and shipowners.
- Injection into EU gas storage and keeping TTF below €67/MWh.
- Signals from OPEC+ delegations ahead of the September 6 meeting.
- Decision by the Russian government on the timing of the diesel export ban.
In conclusion: The oil market has for the first time in a month received a documentary reason to reduce the geopolitical premium; however, between the statement regarding the corridor and the actual increase in transit through the Strait of Hormuz lie mine-clearing, coordination of routes with the U.S., and 30-60 days of technical negotiations. The European gas market enters the heating season with a shortage of stocks, while coal and renewables are simultaneously gaining ground in the global electricity sector. For daily analytics on the energy sector market, follow the Telegram channel Open Oil Market.
