Oil Market: Brent at $88–89 Amid Supply Shortages and Record US Inventory Growth
On Thursday morning, Brent is trading around $88 per barrel, and WTI is near $83, with prices dropping more than $1 after a reduction in global demand forecasts. The international benchmark closed at $88.98 the day prior, reaching a high of $89.5 at one point — approximately 24% above levels preceding the start of the US-Israel military campaign against Iran at the end of February. The oil market is pulled in different directions by various factors:
- Supply Shortage: According to the latest monthly report from the IEA, the global oil market is experiencing a shortfall of about 1.8 million barrels per day in the third quarter due to conflict in the Middle East and limited shipping through the Strait of Hormuz.
- Record Inventory Growth in the US: EIA data showed a 17.4 million barrel increase in commercial crude oil inventories over the week — the largest weekly gain since the beginning of 2023, which has dampened bullish sentiments.
- Brent-WTI Spread Expanded: Middle Eastern disruptions are hitting Brent-linked barrels harder, while US production remains protected from regional logistical risks.
- Speculative Positioning: Fund managers have reduced net long positions in Brent and WTI for the second consecutive week, taking profits amid uncertainties surrounding negotiations.
Hormuz Crisis: US-Iran Negotiations Stalled, Attacks on Shipping Continue
Geopolitics remains the primary price driver for oil and gas. Negotiations to reopen the Strait of Hormuz have stalled: Washington claims to have “full control” over the waters and is increasing pressure on Tehran by expanding sanctions and a naval blockade of Iranian ports. Simultaneously, the escalation has spread to the Red Sea: a Houthi attack on a freighter in the Bab-el-Mandeb Strait resulted in the deaths of six sailors — the first casualties among crews in over a year, while US forces launched a missile strike on a container ship in the Gulf of Oman. However, channels for dialogue remain open: reports indicate that negotiations between Iran and Oman regarding the phased reopening of the strait are in advanced stages, and it is on these expectations that Brent is staying below $90, rather than above $100. Any significant progress could swiftly alleviate part of the military premium; conversely, a breakdown in communications threatens a new wave of price increases for both oil and LNG.
OPEC+: Final Quota Increase and Pause Until Year-End
The OPEC+ alliance approved the final increase in quotas during the August meeting — by 188,000 barrels per day starting in September, completing a return to market of 1.65 million b/d of voluntary cuts for 2023. This decision is largely symbolic: actual production and exports from Gulf countries are significantly lagging behind quotas due to military risks, damaged infrastructure, and logistical constraints. Analysts’ base scenario anticipates a pause in quota changes in the fourth quarter and a shift to challenging negotiations concerning production baselines for 2027, which are expected to be tense in light of the UAE's exit from the organization in May. The next meeting of key participants is scheduled for September 6.
Gas Market: Europe Faces Record-Low Storage Levels Before Winter
The European gas market is the second major topic of the day. TTF hub prices, after a jump of more than 10% at the beginning of the week, are holding at around €58–62 per MWh — about double the levels at the beginning of the year. The reasons for the tension include:
- EU underground gas storage fills are hovering around 55–57% — roughly 22 percentage points below the five-year average and at a record low for the season since observations began in 2009.
- LNG supplies from Qatar through the Strait of Hormuz are facing disruptions, while competition with Asia for available cargoes of liquefied natural gas is intensifying.
- A malfunction at Norway's Ormen Lange field with repairs extended until February 2027 is removing over 1 billion cubic meters from the market during the heating season.
- Heat in Europe is sustaining demand for electricity for air conditioning, increasing gas consumption for generation.
Brussels has already lowered the mandatory storage filling target from 90% to 80% by November 1, but this is also in question at the current injection rates. Commerzbank has raised its gas price forecast for year-end to €50/MWh, while Uniper expects a range of €50–60 as long as the strait remains closed. For European industry and energy, this indicates an expensive winter and the preservation of the risk premium in quotes for the entire 2026-2027 horizon.
Sanction Pressure on Russia: New Package in the US Congress
The US House of Representatives is considering a bipartisan sanctions package targeting Russia's energy revenues, banking sector, and networks circumventing restrictions, with the threat of increased tariffs for the largest buyers of Russian energy resources. For the global oil market, this adds an element of uncertainty: tightening secondary sanctions could reshape the flows of Russian oil and petroleum products to Asia and widen Urals discounts, while India and China continue to balance between advantageous purchases and the risk of trade restrictions from Washington.
Russian Oil Products Market: Fuel Embargo Extended, Priority on Domestic Market
Russia's domestic fuel market remains under manual control following drone attacks on refineries and a summer surge in demand. The government has extended the full ban on the export of automotive gasoline until January 31, 2027; restrictions on diesel, marine fuel, and gas oil exports are in effect until the end of August, while starting September 1, direct diesel producers will be able to resume overseas supplies. Additionally, a special procedure for fuel supply to farmers during the harvest campaign is in effect until November 1. According to authorities' estimates, the market has begun to stabilize partially, although in certain regions the gasoline situation remains tense. For the global petroleum products market, the extension of the Russian embargo means a reduction in export supply of diesel and support for crack spreads at refineries in Europe, the Middle East, and Asia.
Electricity and Renewable Energy: Renewables Surpass Coal for the First Time
The global energy transition is reaching a historic milestone in 2026: according to IEA forecasts, renewable generation will for the first time exceed coal and become the largest source of electricity in the world. Global electricity demand is projected to increase by 3.6% in 2026 and by 3.8% in 2027 — reaching approximately 30,700 TWh, driven by the electrification of transportation and industry, air conditioning, and the rapid expansion of data centers for artificial intelligence. Solar energy is expected to add about 600 TWh of output annually and surpass wind, becoming the second-largest renewable source after hydropower. In the EU, coal's share in generation will drop below 10% for the first time in over a century, while the share of low-carbon electricity is expected to approach 76% by 2027. Demand in China is expected to grow by about 5.5%, while in India, it will rise by 7%. A distinct trend is energy for AI: billions in investment are flowing into storage, small modular reactors, and grid infrastructure, while European generators, including nuclear, are raising annual forecasts amid high electricity prices.
Coal: The Paradox of the Energy Transition and Data Center Demand
Despite record growth in renewables, coal is demonstrating resilience in regions where electricity demand is rising the fastest. In the US, coal generation surged by 13% last year — data centers and high gas prices have brought coal-fired power plants back into operation and slowed their retirement. In China and India, on the other hand, coal output is declining thanks to record additions of solar and wind capacity — for the first time in five decades, both countries have shown simultaneous decreases. Overall, global coal consumption is plateauing: the IEA expects a moderate decline in coal generation through 2030 while maintaining its significant role in Asia's energy balance.
What This Means for Investors: Key Focus Areas in the Coming Weeks
The energy sector remains a marketplace driven by geopolitics. The base case scenario suggests Brent will hold in the range of $85–92 per barrel with the Strait of Hormuz closed, with asymmetric upside risk in case of a negotiation breakdown and potential correction to $80 and below if dialogue between the US and Iran makes breakthroughs. Investors and market participants should monitor:
- the progress of negotiations between Iran and Oman regarding the phased reopening of the Strait of Hormuz and Washington's rhetoric;
- the pace of gas injections into European underground storage and the dynamics of TTF ahead of the heating season;
- the OPEC+ meeting on September 6 and the initial signals regarding quotas for 2027;
- the fate of the US sanctions package against Russia's energy sector and the reactions of India and China;
- the weekly EIA reports on US oil and petroleum products inventories;
- the electricity demand statistics from data centers as a new structural driver for gas, coal, nuclear, and renewables.
Energy markets are facing one of the most strained periods in recent years: the military premium in oil, record-low gas inventories in Europe, and the historical transition in global generation are forming a new configuration for the energy sector, where volatility becomes the norm, and energy security is the top priority for governments and companies worldwide.
