Key Takeaways
The core view is neutral. US-Iran negotiations remain a back-and-forth affair, with no shipping agreement likely in the near term. The Houthis' continued escalation of Red Sea blockades is boosting geopolitical risk premiums, driving an oil price rebound. In the first half of August, there has been no significant recovery in alternative shipping flows, with loadings at the Yanbu port continuing to decline. Asian nations are seeking alternative supply sources: China is heavily purchasing October-loading Russian ESPO crude, while India is issuing numerous tenders for West African oil. Asian countries are gradually moving inventories from floating storage to onshore tanks, ensuring sufficient supply for July and August. With the Strait's status unresolved and negotiations hanging in the balance, our view for crude oil remains in the $80-95 per barrel range.
Geopolitical: Bullish
US-Iran talks are drawn out, making a near-term agreement on navigation unattainable. The Houthis are continuously intensifying Red Sea blockades, escalating military tensions in the Gulf.
Supply: Bullish
Transits through the Strait of Hormuz and the Bab el-Mandeb Strait are decreasing, and loading volumes at the Yanbu port are falling.
Demand: Neutral
Essential purchasing by global refineries provides underlying support for direct crude oil demand. Refinery run rates across Asia have rebounded in August.
Basis / Spread: Neutral
Brent's backwardation is significantly stronger than Dubai's. Monthly spreads have rebounded, while the EFS (Brent/Dubai spread) has narrowed.
Cracking: Neutral
Earlier high margins spurred increased refinery processing. The peak gasoline season is nearing its end. Although regional product cracks have slightly eased, they remain at elevated levels.
Inventories: Neutral
US weekly commercial crude inventories unexpectedly increased by 17.42 million barrels, driven by a decline in net exports. However, global inventories remain low, and there is no substantial signal of loosening in the stockpile data.
Weekly Focus
Geopolitical: Gulf Tensions Intensify
On August 7, the Houthis expanded their Red Sea strike zone, launching long-range strikes on Saudi-backed militia positions in eastern Yemen. This heightened risk-aversion sentiment among Red Sea shippers, pushing up rerouting costs for tankers and providing a modest floor for the geopolitical risk premium on oil prices. On August 8, disagreements in the US-Iran negotiations over a Hormuz Strait navigation agreement became public. Iran explicitly stated it would not allow Strait passage unless the US lifted its blockade and unfroze its assets. Market expectations for a swift reopening of the shipping lane quickly dissipated, halting an oil price decline and sparking a rebound. On August 10, mediator Pakistan signaled an optimistic outlook that US-Iran talks were close to a consensus, but Iran simultaneously reinforced its hardline stance. This tug-of-war between bullish and bearish factors intensified, leading to a 5% single-day surge in international oil prices. On August 11, as Pakistan's positive signals failed to materialize into a concrete deal, and the Houthis conducted live-fire drills showcasing their long-range anti-ship capabilities, a dual shipping risk materialized in the Red Sea and the Persian Gulf. Brent crude broke through the $90 mark. On August 12, US forces intercepted and fired warning shots at a vessel attempting to breach the blockade in the Persian Gulf. The US-Iran confrontation escalated once more, with markets fearing renewed conflict, and oil prices continued their strong upward trend.
Transit: Vessel Transits Through Hormuz Strait Decline
Logistics monitoring for the week ending August 12, 2026, shows 42 liquid-carrying vessels transited the Strait of Hormuz, including 7 tankers. The average daily tanker transit count was 1 vessel, moving an average of 2.0 million barrels per day of crude and condensate (compared to 15 million bpd pre-conflict). The US-Iran struggle has entered a middle phase of a long-term stalemate. The US has shifted from large-scale airstrikes to a strategy of military presence, sustained sanctions, and indirect diplomatic pressure. The Trump administration is communicating with Iran through third parties like Oman, with no direct formal negotiations.
Transit: Vessel Transits Through Bab el-Mandeb Strait Decline
Flow monitoring for the same week shows 100 liquid-carrying vessels transited the Bab el-Mandeb Strait, including 17 tankers, 2 of which had their AIS signals turned off. The average daily tanker transit count was 2 vessels, moving an average of 2.04 million bpd of crude (compared to 2.66 million bpd pre-conflict and 6.88 million bpd during the MoU period). The past week saw a significant escalation of conflict in the Bab el-Mandeb region. The Houthis' indiscriminate attacks on declared foreign merchant vessels have resulted in crew fatalities. This has created a cycle of retaliation with mutual airstrikes between the Houthis and the Saudi-led coalition. Iran provides covert support to the Houthis, and US-UK escort missions have a blind spot in the southern sector. This has intensified the risk-avoidance rerouting of vessels, with multi-party mediation efforts showing no signs of de-escalation.
Transit: Alternative Flows See Little Overall Improvement, but Yanbu Loadings Decline
Yanbu Port Loadings Decline: For the week ending August 12, crude and condensate loadings at Yanbu port were 2.32 million bpd, a decrease of 260,000 bpd from the previous week. Reasons likely include shipowners adopting a wait-and-see approach due to Houthi threats, a shift to lifting from Sidi Kerir, and unallocated cargo volumes. Fujairah Loadings Recover: For the same week, crude and condensate loadings at Fujairah port were 2.27 million bpd, a weekly increase of 110,000 bpd. Oman STS Activity Improves: For the same week, the average weekly Oman STS (ship-to-ship transfer) loading volume was 1.92 million bpd, a weekly increase of 500,000 bpd. Total alternative flows currently stand at 6.51 million bpd, a weekly increase of 350,000 bpd.
Transit: Yanbu Port Loadings Continue, More Cargo Heads North via Egypt to the Mediterranean
Saudi Arabia continues its loadings at the Yanbu port. The route has shifted from heading south through the Bab el-Mandeb to heading north towards the Sumed pipeline and the Suez Canal. For the week ending August 10, the average weekly crude and condensate export volume through the Bab el-Mandeb was 1.5 million bpd, with Saudi-origin exports accounting for 800,000 bpd. Meanwhile, crude imports at Egypt's Ain Sukhna port and exports from Sidi Kerir port continue to increase, reaching 1.53 million bpd and 1.59 million bpd this week, respectively. The incremental volume is primarily from Saudi sources. The volume heading to Asia is decreasing.
Inventories: Buffer Stocks are Depleting, SPR Release Capacity Deteriorates Significantly
Total Volumes Shrink Drastically: Since the start of the conflict, total global crude inventories have decreased by a cumulative 321 million barrels. At the beginning of the conflict, the world had a surplus of 400 million barrels of commercial crude inventory. After a brief minor build in June, inventories returned to a drawdown in July, primarily driven by weaker Chinese imports. Only the Middle East saw a passive build due to export disruptions, which was insufficient to offset the overall global destocking pressure. SPR Declines: Release capacity has significantly deteriorated, and the rate of release has slowed sharply. Of the 430 million barrels IEA-member countries pledged to release from strategic reserves, approximately 70% have already been placed on the market. While over 1 billion barrels of government-controlled stocks appear to remain, the actual usable volume is severely diminished. US Inventories Hit Lows: US SPR stocks have fallen to their lowest level since 1983, currently around 304 million barrels. After inventories fell below 320 million barrels, the average daily release rate in August slowed to 550,000-600,000 barrels per day, significantly lower than the over 1 million bpd release rate seen in May-June.
Recent Asian Arrivals of Middle Eastern Crude Increase, Already Being Processed by Refineries
As of the week ending August 12, floating crude storage in Asia totaled 567 million barrels, a decrease of 8 million barrels week-on-week. Onshore crude tank storage in Asia was 2,091 million barrels, a decrease of 2.95 million barrels from the prior week. As both Asian floating and onshore crude inventories declined, the conversion of floating storage to onshore capacity has been followed by some of the crude being processed and consumed by refineries, while some cargoes have been re-exported out of the Asian region for consumption elsewhere.
Recent Asian Arrivals of Middle Eastern Crude Increase, Supply is Adequate for July and August
Pricing: Middle Eastern Crude Differentials Recover
Saudi Aramco announced its September crude OSPs (Official Selling Prices) for Asia. The differential for Arab Light crude against the Oman/Dubai average widened to a discount of $2.00 per barrel, the lowest in over five years since June 2020, continuing the trend of aggressive cuts. However, the OSPs for Medium and Heavy grades were raised by about $1.25 per barrel. At the same time, selling prices for Europe and the Mediterranean were lowered. This suggests an attempt to maintain market share despite supply constraints. Following the escalation of the Middle East situation, Asian buyers have turned to cheaper Atlantic Basin crude. South Korea, Thailand, and Japanese refineries have collectively purchased approximately 8-9 million barrels of WTI Midland for October arrival, diverting demand away from Middle Eastern light crude.
Alternative Sources: Chinese Refineries Scoop Up October Russian ESPO
Driven by geopolitical risks in Middle Eastern shipping, low short-haul freight rates, light sweet crude suitability for Q4 product demand, and the high landed cost of West African crude, Chinese refineries have aggressively booked October-loading ESPO to secure stable, low-cost feedstock. Russia's Far East Kozmino port plans to load 42 ESPO cargoes in October, approximately 100,000 tons (740,000 barrels) per vessel, for a total volume of about 31.08 million barrels. Of the 42 cargoes, 30 (71%) have been fully booked by Chinese refineries. Only 12 spot cargoes remain for sale, with some traders quoting prices at Brent + $2.00/bbl DES Shandong. State-owned refineries are the main buyers, securing 18 cargoes (Unipec: 11, PetroChina: 5, CNOOC: 2). Large private integrated refinery complexes booked 9 cargoes (ZPC: 4, Hengli Petrochemical: 3, Shenghong Petrochemical: 2). Independent Shandong refineries booked a total of 3 cargoes.
Alternative Sources: Indian Refineries Issue Large Tenders for West African Crude
With shipping risks in the Red Sea and Hormuz Strait elevated, Indian purchases of Russian crude have contracted. New refineries coming online in India have increased demand for light sweet crude. Lacking a large strategic reserve, India relies on spot tenders to flexibly replenish supply and hedge against disruption. Consequently, West African tender volumes in July-August surged 65% year-on-year. From July 1 to August 12, over 16 million barrels of West African crude were sold via tenders, all for September loading. Counterparties are primarily international trading houses like Shell, Chevron, Glencore, and Trafigura.
Run Rates: Chinese Refinery Run Rates Recover
Product Margins: Product Cracks Ease, but Diesel Remains Strong
Product Margins: Product Scarcity is More Pronounced
Positioning: Long/Short Ratio at Low Levels
As of the week ending August 4, speculative money in WTI and Brent reduced long positions and added shorts, leading to a significant decline in net long positions. The exodus of speculative longs was more pronounced in Brent. A clear divergence was seen among commercial participants. WTI positions maintained a large net long position from commercial traders, while the commercial book in Brent deeply deepened its net short position.
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