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EMEA Oil Update: Crude Falls as Traders Await US Sanctions on Iran

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Crude oil futures fell on Monday as markets consolidated following a two-week rally, awaiting details of a US financial sanctions package targeting Iran.

Brent declined 1.5% to $92.98 per barrel, while Murban crude futures fell 0.5% to $103/bbl.

Last week crude benchmarks logged a second consecutive weekly gain, underpinned by the ongoing collapse of US-Iran diplomatic talks and severe logistical bottlenecks in the Middle East.

"Crude slipped after a two-week rally as traders awaited details of the US plan to increase the economic pressure on Iran, due later Monday," Saxo Bank analysts noted.

Market caution intensified as traders awaited details on a major economic offensive from Washington.

"The [US] is expected today to present a plan for how Iran will be isolated economically, while oil prices fall by just over a dollar to $93 per barrel," SEB analysts noted.

While Washington aims to escalate pressure and isolate Tehran economically, Iran has pushed back reportedly vowing to shut down all oil exports from the Gulf if the economic conflict persists.

Traffic and transit volumes through the Strait of Hormuz remain well below normal operational levels, keeping a heavy geopolitical risk premium baked into petroleum products, analysts said.

On the geopolitical front, a tanker caught fire after being struck by an unknown projectile about 63 nautical miles west of Yanbu, Saudi Arabia, the UK Maritime Trade Operations said on Monday.

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Weekly Crude Gains Nearly 6% as Hormuz Disruptions, US-Iran Tensions Lift Prices

Crude benchmarks logged a second consecutive weekly gain, driven by the collapse of US-Iran diplomatic talks, severe disruptions in the Strait of Hormuz, and potential new US economic sanctions on Iran.West Texas Intermediate settled at $86.64 per barrel, up from $82.40/bbl the previous week, while Brent closed at $93.70/bbl, up from $88.73/bbl a week earlier.Both benchmarks gained almost 6% over the week.The rally was primarily fueled by geopolitical tensions, stalled diplomatic efforts between Washington and Tehran, and persistent disruptions to regional energy flows, market analysts said."The lack of a solution in the Middle East continues to raise oil prices, which have now risen for several days in a row," Pia Fromlet, an economist at SEB Research, said in a Friday note.The week began under heavy pressure as the interim 60-day peace framework set out under the Islamabad Memorandum of Understanding expired without a permanent peace agreement or an extension.Following this, tensions escalated sharply when the UAE halted all trade and financial transactions with Iran, accusing Tehran of launching ballistic missiles at its territory, an allegation denied by Iranian officials.Ship-tracking data show that commercial vessel traffic through the critical Strait of Hormuz remained heavily constrained due to ongoing security risks and attacks, with confirmed daily crossings plunging to multi-month lows and Middle East refinery runs remaining severely depressed.Throughout the week, market sentiment was heavily driven by escalating political rhetoric and policy moves.President Trump threatened sweeping "economic warfare" against Iran, vowing severe secondary consequences for any nation or entity offering Tehran an economic lifeline.Echoing this stance, US Treasury Secretary Scott Bessent announced plans for a tough new sanctions package, further intensifying pressure on Iran's economy.Bessent said he would disclose details on the new measures on Monday."The US administration is expected to provide details on Monday about how it intends to further isolate Iran's economy, with traders concerned that tougher measures could trigger significant blowback from China, a key trading partner and buyer of Iranian oil," Saxo Bank analysts said.The potential for a Chinese response adds another layer of uncertainty to an already tight market, keeping attention focused on the broader risks to regional energy supplies."The measures are expected to target Tehran directly, while potentially extending to countries that continue doing business with Iran, including China," analysts at Aegis Hedging said in a Friday note.Aegis cited Rystad Energy's forecasts that Chinese crude purchases could increase by up to 1.2 million barrels per day from Q3 through year-end 2026 after the world's largest crude importer reduced purchases and refinery runs in response to the Middle East-driven price spike."With the Middle East crisis showing few signs of easing, the risk of further disruption to regional energy flows continues to support crude and refined product prices," Saxo Bank analysts noted.Despite Washington's claims that the Strait of Hormuz is open, vessel transit volumes remain severely limited, and recent attacks on infrastructure in Saudi Arabia and commercial vessels have kept a hefty geopolitical risk premium priced into the market."Washington's harder economic stance toward Iran and the lack of progress toward reopening the Strait of Hormuz continue to keep a substantial supply premium in the market," Gelber & Associates said.On the supply side, the Energy Information Administration reported a 4.4-million-barrel build in US commercial crude inventories for the week ended Aug. 14, bringing stocks in line with the five-year average.The build is above Macquarie's estimate of a 3.9-mmbbl inventory rise for the week ended Aug. 14."The commercial stock build was driven by higher domestic supply despite strong export demand and lower imports," ING analysts noted.The US oil rig count decreased by three, from 455 the previous week to 452, in the week ending Aug. 21, according to data from Baker Hughes (BKR) released Friday. That compares with 411 oil rigs in operation a year earlier.The consolidated North American rig count, a key early indicator of future production levels, dropped by eight to 804 from 812 the previous week.Money managers in the WTI crude futures and options markets maintained their net long positions in the week ended Aug. 18, according to the Commodity Futures Trading Commission's latest Commitments of Traders report released Friday.The data showed that money managers reported 195,631 long positions, up 3,126 from Aug. 11, while short positions were up 2,805 to 91,596.Money managers' net long position increased marginally by 321 contracts to 104,035 contracts from 103,714 the previous week. This indicates little change in bullish positioning despite the rise in crude prices.Meanwhile, security risks also remain elevated beyond the Strait of Hormuz. A US-sanctioned tanker reportedly sailing under a false flag was hijacked in the Gulf of Aden and redirected toward Somalia, according to MarineTraffic on Thursday.Six armed individuals reportedly boarded the tanker and took control of the vessel.MarineTraffic data showed that the 32,200-deadweight-ton oil products tanker updated its AIS destination to Port Sudan on Aug. 14 and entered the Somalia "high-risk" area on Aug. 19.

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Oil & Energy

US Natural Gas Prices Rise for 2nd Straight Week Amid Robust Weather-Related Momentum

US natural gas prices ended their second consecutive week in the green, as weather-related momentum continued to support prices despite a bearish storage build.In the futures market, the Nymex front-month contract ended the week at $2.76 per million British thermal units on Friday, up from $2.71/MMBtu on Aug. 14.Natural gas spot prices increased to $2.94/MMBtu on Wednesday, up $0.12/MMBtu, according to the US Energy Information Administration's Weekly Gas Storage Supplement, released on Thursday.This comes amid forecasts of above-normal temperatures expected to blanket almost the entire country, except for parts of the Northeast and Northwest, from Aug. 28 through Sept. 3, according to a report by the National Weather Service.During the week as well, cooler temperatures across the Northeast and parts of the West offset above-average temperatures across the South, with total demand easing slightly by 0.8 billion cubic feet per day, due to lower power burn, according to data from S&P Global.Meanwhile, gas output remained largely unchanged, averaging 116.6 Bcf/d, even as net imports from Canada declined slightly by 0.2 Bcf/d.US LNG export feedgas flows continued to hover around 17.5 Bcf/d, below the 30-day moving average of 17.97 Bcf, as well as the Summer peak of 19 Bcf/d in April, according to the Bloomberg LNG Feedgas Model.The net injection into storage for the week ended Aug. 14 was 16 Bcf, down significantly from last week's 36 Bcf, while bringing total gas inventories to 3,169 Bcf, according to the weekly EIA inventory data.The net storage build overshot forecasts for a 15 Bcf injection, but came in below both the prior year's 19 Bcf build and the five-year average of 29 Bcf for the period, according to data compiled by Investing.com.Only the East and the Midwest regions reported net injections of 15 Bcf and 19 Bcf, respectively, while most others, such as the Mountain, Pacific, and South Central, offset much of this with significant net withdrawals during the week ended Aug. 14.At 3,169 Bcf, total US working gas in storage was 28 Bcf, or 1% below the same period last year, but 185 Bcf, or 6% above the five-year average for this period.According to Pinebrook Energy Advisors, inventories remained healthy heading into the "fall shoulder season," with strong production and peak summer demand now firmly in the rearview mirror.As a result, markets are likely to focus more on the prospect of comfortable storage levels heading into winter than on modest misses against weekly injection forecasts.A total of 34 LNG carriers departed US ports during the week, down two from the prior week, with a total combined capacity of 129 Bcf, down 5 Bcf from last week.Meanwhile, the US gas rig count was down by one, from 128 to 127, in the week ending Aug. 21, according to data from Baker Hughes (BKR) released Friday. That compares with 122 ga rigs in operation a year earlier.The consolidated North American rig count, a key early indicator of future production levels, dropped by eight to 804 from 812 the previous week.In international markets, European TTF gas prices averaged $21.11/MMBtu for the week ended Aug. 19, $1.36/MMBtu above the prior week. This week's average TTF price was the highest in over three years, since the week ending January 11, 2023, at $22.02/MMBtu.Meanwhile, the Japan-Korea Marker averaged $21.60/MMBtu, about $0.41/MMBtu above the prior week.

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Oil & Energy

Refinery Outages Drive Diesel Price Surge as Global Supply Tightens, Enverus Says

Refinery outages, rather than crude supply, are driving diesel prices higher as global capacity constraints tighten product markets and leave little room to absorb further disruptions, Enverus Intelligence Research said in a note Thursday.Diesel is trading near $180 per barrel against $85/bbl WTI, giving refiners roughly a $100-a-barrel crack spread, an all-time high that reflects severe product shortages.About 7 million barrels per day to 8 million b/d of global refining capacity remains offline, limiting the market's ability to supply diesel at the pace required by demand, Enverus said.The record crack spread shows refiners capturing an unusually large margin as the diesel market increasingly relies on product availability rather than price to balance supply and demand.Ukrainian strikes have taken roughly 5 million b/d of Russian refining capacity offline, while drone attacks have shut another 2 million b/d of refining capacity in the Middle East.Russia has also halted diesel exports to protect domestic supplies, while the closure of the Strait of Hormuz has restricted crude access for some refiners, further tightening product markets.Enverus said the outlook depends on the pace of Ukrainian strikes and Russian refinery repairs, with no reliable timeline for restoring the disrupted capacity. US refiners are already operating near 96% utilization.The US Department of Energy is working to maintain that high utilization rate, but limited spare capacity leaves the US market vulnerable to additional disruptions, including risks from the hurricane season, according to Enverus.Low product inventories are also leaving Canadian consumers with little protection against higher diesel prices. Enverus expects prices to continue rising rather than stabilize until refining capacity returns or demand weakens.The International Energy Agency expects global oil demand to grow by roughly 2 million b/d next year, but Enverus said that outlook depends on the Strait of Hormuz reopening and a durable peace.China remains a key variable after reducing crude purchases earlier this year before returning to the market, potentially indicating that Beijing expects the disruption to last and is rebuilding inventories.Trump's social media post about the Keystone pipeline signals stronger interest in Canadian crude and Alberta export options, including the existing Bridger/South Bow route and potential access to Asian markets.Canadian producers remain cautious about committing to costly Pacific pipeline infrastructure while forward crude prices hover near $75/bbl for next year. Three routes remain in contention: an East Coast line, a Pacific option and the Bridger route.Enverus said crude prices appear $10/bbl to $15/bbl below levels implied by physical inventories, while 6 million b/d to 8 million b/d of Middle Eastern supply remains shut in. Strong demand could eventually force prices higher as fundamentals tighten.