Brent rose 6% last week as hopes for a reopening faded. Brent crude rose 6% last week as hopes for ”an imminent reopening” of the SoH, as heralded by Trump again and again, faded completely. Brent traded in a range of $81.5 – 90.07/b before closing the week at $88.52/b. That is very close to the average Brent price year to date with Brent 1 month contract having averaged $86.9/b and the Dated Brent spot price having averaged $91.5/b. This morning Brent is trading close to unchanged at $88.6/b

The ceasefire between the US and Iran is today officially over. Trump of course has declared Iran for badly beaten and that the SoH could soon become ”a territory of the United States”. Trump is for sure a great entertainer! Iran’s response: ”The Strait of Hormuz cannot be seized by tweet.”

Economic sanctions isn’t going to change things. The fact is that the US is out of options and low on critical defensive ammunition to the point that it cannot any longer go on attacking Iran. Instead the path forward will be economic sanctions which everyone knows is a very lengthy process with highly uncertain outcome. If Iran doesn’t bow to bombs it will for sure not bow to sanctions. The general thinking and experience is that sanctions do not work. Trump desperately wants to extricate himself from the war with Iran in order to focus on the US midterm elections. But Iran won’t let him.

Netanyahu is not sitting still and bombed Lebanon over the weekend. Strikes have also resumed in Gaza while Israeli settlers are making trouble in the west bank. Trump doesn’t control any of it while Iran is demanding a resolution to these conflicts and end of hostilities. This of course complicates things further for Trump.

Iran and Oman continues to discuss how the SoH is going to be administrated in the future. They agreeing does not imply a reopening though has Iran stated.

For the time being there is enough crude oil in the market preventing crude oil stocks from falling sharply and preventing Brent crude from rallying higher.

Back of the envelope calculations of how the loss of 14 mb/d of crude normally passing through the SoH are currently compensated by different elements.

Helps to explain why Brent hasn’t rallied to $150/b or higher. This table helps to explain why global crude stocks are not falling rapidly and why Brent crude is not rising exponentially as a result.

Two very important elements. What stands out here is the importance of two elements. 1) The escape of oil out of the SoH of maybe as much as 5 mb/d and 2) The Saudi Arabian redirection of 3 mb/d to the Red Sea. Shut these two off and the market is quickly in a significant deficit.

Iran is controlling them both. A powerful threat to Trump’s midterm elections. The big headache for Trump is that Iran directly and indirectly controls them both. For all we know Iran is allowing 5 mb/d to traverse the SoH every day. It probably isn’t all that difficult for Iran to up the game and totally halt the flow at night out of the SoH. Ukraine got better and better at hitting Russian refineries deep inside Russia. Iran will get better at hitting convoys at night trying to sneak out. But maybe Iran isn’t even trying so hard and is just biding its time for when to choke it fully. Iran can also activate the Houthis more aggressively to halt the flow of oil out of the Bab el-Mandeb Strait thus in part also chocking off the Yanbu redirect.

Stay long or buy-on-dips over the coming 2-3 months to the US midterm election. It is very plausible that Iran can fully close of the SoH and and also activate a closure of the Bab el-Mandeb Strait if and when it wants to. Further that it will play with such closures over the coming 2-3 months to the US midterm elections on 3 November. Iran won’t let Trump extricate himself from this war and Iran won’t allow this to be easy sailing for Trump. 

The SoH doesn’t look like it will open any time soon sending Brent crude sharply higher. The Brent crude M1 contract has rebounded sharply since the middle of last week (+10%) following earlier sharp declines on hopes on an imminent deal between Iran  and Oman on how to operate the SoH in the future. Negotiations which Donald Trump and the US supposedly was a part of. It is now blistering clear that the US wasn’t part of these negotiations. Iran has made i very clear that an agreement with Oman does not lead to a reopening of the Strait before the US complies with the MoU agreement between Iran and the US from earlier this summer (unfreezing Iranian assets, lifting of all sanctions, lifting of the current US embargo on Iran, acknowledging that Iran has the full control of the SoH, peace in Lebanon, Gaza and Yemen,..). Trump cannot agree to the MoU he signed onto without getting massive political criticism at home in the runup to the midterm elections. So that won’t happen. It has also become clear that the US is running low on ammunition. Trump doesn’t have the option any more to threaten Iran with further attacks as it doesn’t have the necessary defensive ammunition (Patriot rockets) to defend its military bases and allies in the Middle East region against retaliatory attacks from Iran. As a result he is now trying to fade the whole situation instead stating that economic sanctions will have to do the job instead (Iran is broke,…., etc). But that is a tedious and a very gradual process. It all means that there is little chance for a reopening of the SoH for normal shipping flows any time soon. And that is why Brent crude has spiked back up.

Commercial oil stocks in China has fallen as a result of much lower imports. The latter implies an emptying of oil stocks in China. Kepler has been tracking Chinese crude oil stocks and estimates that they are down by 83 mb from April to July. That is very little given that Chinese net crude and product imports was down an average 3.7 mb/d from April to July (= 452 mb) versus the average in 2025. There has thus probably been declines in Chinese strategic reserves as well. Though these are not published.

Chinese net imports of crude and products was down sharply in April to July. June saw the sharpest drop.

Factors which prevented exponential crude oil prices have started to fade. Several of the factors which softened the blow from the closure of the SoH regarding crude oil may now start to fade. The emptying of OECD SPR is starting to slow. China has started to import more and a news story on Bloomberg today highlights that China Teapot refineries may start to buy more Iranian crude floating around waiting for a buyer in Asia. How much crude is really escaping out through the SoH is hard to pinpoint exactly. Shifting it from 1 VLCC per day to 3 VLCCs sneaking out lifts exports from 2 mb/d to 6 mb/d which makes a whole lot of difference.

Normal exports of crude out of the SoH was about 14 mb/d before the closure. How did the world cope?

But neither China nor the US wants an exponential rally in crude oil and they have tools to prevent it. Two strong forces will however likely counter an exponential crude oil price rally. 1) China does not want an oil price rally to $150/b or higher to kill the global economy as it would badly hurt its $1.3trn surplus export industry while its domestic economy is weak. Rather import less and draw down inventories further. 2) Trump doesn’t want an exponential crude oil price in the runup to the US midterm elections. Rather put more SPR crude oil into the market to dampen it.

Oil products (and natural gas) is where the pain and trouble is. Winter could be expensive for consumers. Oil products is however a different matter. Lost exports of oil products from the SoH has not been replaced and Russian refineries are being hit every week with refining throughput there probably down by 1.5 mb/d. The Houthis in Yemen are also attacking Saudi refineries. All this helps to reduce crude oil demand by refineries while it keeps supply of oil products ultra-tight. The world is starved for diesel and jet fuel products and there is not much the US and China can do about it. Whole sale diesel prices at around $160/b is also showing that demand destruction is not all that big on the end-consumer side of the equation. The world keeps consuming oil products and demand is not dented all that much. The very high diesel prices is partly a reflection of that.

Brent crude, ARA oil products and nat gas in the Netherlands in USD/boe. Front-contracts

Brent M1 moving below the 200 dma of $78.7/b. Brent crude continued its move lower yesterday with a decline of 3.3% to $77.9/b. This morning it is adding another drop of 1.4% to $76.8/b. Israel bombing Lebanon during the weekend was a violence of the MoU and Iran was quick to declare the SoH closed again. But the willingness to move forward by both the US and Iran obviously trumped the bombing in Lebanon making the event more of a hiccup on the road of further negotiations.

The US has now waived sanctions against Iranian oil exports for two months allowing Iran to sell its oil all over the world, though sanctions instated in Europe will take more time to unwind. Oil from Iran, Russia as well as Venezuela can for the time being be sold across the world without any sharp discount due to sanctions. Chinese Tea-pot refineries will suffer as they previously could buy rebated crude while selling products at market prices.

Crude oil is no flowing out of the SoH with latest number close to 7 mb/d on a three day moving average. That is still well below the 14 mb/d of crude and 6 mb/d of products normally flowing out of the SoH. Latest estimate is that there is around 80 mb of crude on water inside the Persian Gulf and maybe another 80 mb of oil products on water as well. If crude is exiting the SoH at a rate of around 7 mb/d, then the 80 mb of crude would be depleted within 10-15 days and there after the flow would rely on new crude tankers entering, loading and then exiting the SoH to continue further flows. Given the uncertainties surrounding the status of the SoH with Iran stating that it was closed again as recent as this weekend, there is likely an asymmetry here where ships and oil stranded in the SoH for months are much more eager to exit than new ships are eager to enter.

For now Brent crude keeps falling like a rock with the front-end Brent contract now only trading at a premium of $7.6/b above the five year contract. Quickly heading towards parity. The Brent M1 contract has now broken below its 200 dma of $78.7/b and is closing in on the Fibo-level at $74.7/b. Below that there is not much more supporting levels to be found before $73/b which would close the gap from February 3.

Brent crude M1 technical levels

Net long speculative positions are also falling like a rock and as of Tuesday last week the net long positioning in Brent and WTI together summed to 314 million barrels and falling fast.

Will there be a rebound? A possible combination could be an exhaustion of the oil blob caught within the SoH within 1-2 weeks if exits continue at current rate while new ships entering are much more cautious, more Israeli bombardments in Lebanon as Netanyahu fights for re-election, a temporary closure of the SoH again while speculative short positions take cover buying back and covering their positions.

US and Israeli stands versus Iran could harden beyond elections so 2027 surplus is far from given. But Iran and the US are all in all moving towards a set of solutions with both clearly eager to reopen the SoH and keep it open. And that is what the market is pricing along with sharply falling prices. The ongoing discussions will likely take months and last beyond both the upcoming Israeli election (before 27 oct) and the US midterm elections on 3 Nov. Beyond those dates the stance by both Israel and the US may harden again versus Iran. But Iran knows that and is most likely preparing for such a hardening turn. Thus a surplus of oil and global oil stock rebuilding in 2027 (as now is mostly projected) is far from given.