The deadline for implementing a June memorandum of understanding on Iran's nuclear program expired Monday with diplomatic efforts deadlocked, while attacks on shipping continued around the Strait of Hormuz and energy markets remained highly sensitive to developments in the conflict, analysts at RBC Capital Markets said in a Wednesday note.
RBC said regional officials and security experts indicate Iran is demanding full implementation of the June agreement, including the immediate release of billions of dollars in frozen funds and the lifting of US sanctions, before allowing more vessels to transit the strait.
The analysts said Iran's Islamic Revolutionary Guard Corps believes time is on its side and that it can outlast Washington. They said it would be difficult for US President Donald Trump to offer major economic concessions or effectively recognize Iranian control over the strait amid opposition from US and regional forces pushing to continue military pressure.
At least five ships have come under fire in and around the Strait of Hormuz over the past week, most of them linked to Abu Dhabi National Oil Co. RBC is watching the incidents closely because the UAE has been effective at using ship-to-ship transfers to move crude into key export markets.
The UAE on Wednesday announced an indefinite halt to all trade and financial transactions with Iran after intercepting ballistic missiles targeting the country. Dubai has historically served as a major conduit for Iranian financial transactions and a re-export hub for goods entering Iran.
Regarding natural gas, RBC said US natural gas prices are likely to remain below its baseline despite a late-summer heat wave. Near-term forecasts show cooling-degree days about 25% above normal, with above-normal temperatures expected into early September.
However, weaker-than-expected power-sector gas demand has weighed on prices, while RBC forecasts US gas storage could reach 3.9 trillion cubic feet at the end of the injection season, increasing downside risk.
The analysts nonetheless see longer-term support from gas-fired generation and behind-the-meter power development, forecasting 2% year-over-year growth in gas demand from power generation in 2027. Natural gas is also expected to remain an important reliability backstop during extreme weather.
Renewable and battery resources are meanwhile setting records in Texas. ERCOT battery discharges exceeded 12 gigawatts Tuesday evening as demand approached 90 GW, roughly 70% above the previous annual record of 7.175 GW set a year earlier.
ERCOT expects demand to exceed its 91.3 GW record this weekend as heat indexes approach 110 degrees Fahrenheit. At the same time, wind generation could fall by up to 5 GW per day, increasing pressure on gas, batteries, and other resources to maintain grid reliability.