U.S. Energy Under Secretary Kyle Haustveit said Tuesday that approximately half of Venezuela’s oil output is currently being sent to the United States. Speaking at a Houston event, he noted that more than 500,000 barrels per day — roughly half of the South American country’s production — are flowing to U.S. refineries specifically designed to process that type of crude. Venezuela is producing about 1.25 million barrels daily, he added.

Haustveit also said that over 100,000 barrels per day of U.S. naphtha are being shipped to Venezuela, where it is blended with heavier crude to support production. He described the arrangement as a mutually beneficial energy partnership, citing the proximity of the two markets and the open trade between them. “Real value is being created on both sides,” he said, adding that contract sanctity would be upheld. He also praised recent progress in Venezuela.

Jovanny Martinez, a vice president at Venezuela’s state oil company PDVSA, spoke at the same event and emphasized that the U.S. relies on Venezuelan heavy crude to sustain its economy. He said Venezuela’s crude output should reach 1.245 million barrels per day by the end of August, with exports up 19.7 percent this year. Martinez noted that the country needs diluents for heavier grades and that these should be produced domestically.

Martinez also stressed the need to improve, modernize, and expand Venezuela’s refineries. He reported that domestic fuel output has grown 12.9 percent so far this year, while local fuel supply is up 5.4 percent. “We made a big effort for an energy reform, and now we’re looking for real results in terms of development,” he said. He added that Venezuela faces a natural gas deficit of 500 million cubic feet per day.

Russian ESPO Blend crude loading in October for delivery to China is changing hands at premiums of up to $1 per barrel over ICE Brent, according to four trade sources.

Asian refiners are looking beyond Middle Eastern grades because of worries that shipments via the Strait of Hormuz could stay disrupted, the sources said. Oil futures rose Monday as diplomatic attempts to settle the Middle East conflict advanced little, though the absence of major supply outages capped gains.

“It’s unclear how long the Mideast crisis will last or how much Iranian crude will actually ship, so Russian supply is the most dependable option,” one trader said.

Trading in October-loading ESPO cargoes has been brisk, with almost all volumes sold at around a $1 premium to ICE Brent on a delivered basis at Chinese ports, the sources said. That compares with September-loading barrels, which traded from a $1 discount up to parity with Brent last month; the previous premium to Brent was in June.

Strong buying by Chinese refiners has pushed aside India, another major Russian oil customer, two sources said, noting Indian refiners could not get October ESPO volumes because Chinese buyers had taken all available cargoes. China’s independent plants as well as major state-owned refiners have been actively purchasing ESPO Blend, the sources added.

On Tuesday, preliminary shipping data indicated that 37 commodity vessels transited the Bab el-Mandeb strait, marking the highest daily count since July 19. Only a limited number of ships passed through the Strait of Hormuz on the same day.

According to ship-tracking information from analytics firm Kpler, 20 vessels entered the Bab el-Mandeb, while 17 exited. None of these were very large crude carriers (VLCCs) or liquefied natural gas tankers. Among those leaving the strait, three were laden Aframax crude tankers: the Aisopos and Gustav each carried over 750,000 barrels of oil to the Gulf of Aden, while the Karachi transported roughly 430,000 barrels destined for Pakistan. Of the ships entering, two carried petrochemical products. The Velos Aquarius held 345,000 barrels of methyl tertiary butyl ether—a gasoline blendstock—for delivery west of Suez, and the Sea Ambition carried nearly 93,000 barrels of chemicals bound for Turkey.

Sources reported that China has engaged in direct negotiations with the Houthi movement to secure safe passage for its tankers through the Red Sea.

In contrast, only five commodity ships passed through the Strait of Hormuz on Tuesday, according to Kpler data—three entering and two exiting. The VLCC Nissos Kea, currently empty, was among those entering. Meanwhile, Oman has put forward a proposal to Iran for joint regional management of the strait, with shipping firms paying voluntary fees. However, a U.S. official stated that no tolls or fees for transit through the strait would be included in any coordination deal currently under discussion.

In the first half of 2026, bunker fuel sales at the UAE’s Fujairah port—a critical ship refuelling hub near the Strait of Hormuz—fell by more than half compared to the previous year. This steep drop has further weakened Fujairah’s position among the world’s leading bunkering hubs, with China’s Zhoushan port on track to surpass it as the third-largest hub this year amid ongoing supply constraints.

Total marine fuel sales, excluding lubricants, reached approximately 1.63 million metric tons (10.4 million barrels) in the first half of 2026 at Fujairah, a 55% decline from the same period in 2025, according to data from the Fujairah Oil Industry Zone published by S&P Global. Monthly volumes continued to decrease, hitting a record low of around 86,000 tons in June.

In June, low-sulphur marine fuel—including both residual and gasoil fuels—accounted for 51% of sales, while high-sulphur marine fuel made up the remaining 49%. Sales initially plummeted in March following the outbreak of war at the end of February, which effectively closed the waterway and damaged infrastructure, hindering loading operations.

Fujairah typically imports fuel oil from other Middle Eastern exporters like Iran, as well as from Russia. Most Middle Eastern supplies exit through the Strait of Hormuz. Additionally, fuel oil shipments from Russia have decreased month-on-month through early 2026, as intensified attacks on refinery infrastructure.

These reduced supplies tightened the Fujairah market. Although replenishment occurred in early July after a brief ceasefire, market sources indicated that supply flows remained uncertain again as hostilities resumed. Residual fuel oil inventories at Fujairah recovered to over 7.3 million barrels (1.2 million tons) in the week ending July 6, the highest level since early March, according to Fujairah Oil Industry Zone data. However, stockpiles saw a slight decline again this week.

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Executive Commentary: The crude oil market experienced a sharp geopolitical shockwave as Iran declared the Strait of Hormuz closed indefinitely following renewed US-Iran hostilities. This triggered a significant rally across global benchmarks, with WTI and Brent both gaining 3-4% in the session. The disruption reshapes supply routes, bolsters Atlantic Basin alternatives, and introduces fresh volatility into the August-September trading cycle.

US Gulf Coast & Waterborne Crude

US Gulf coast waterborne values reversed prior losses relative to October Ice Brent, supported by firmer WTI Houston pipeline differentials and climbing futures. WTI loading 15-45 days forward narrowed by over 10¢/bl to a $4.13/bl discount to October Ice Brent. The premium over WTI Houston rose by nearly 5¢/bl to 31¢/bl. Underlying domestic WTI pipeline differentials strengthened to just under a 15¢/bl premium to August WTI Nymex. August Nymex WTI surged by $6.73/bl to $78.14/bl after Iran announced the Strait of Hormuz closure. However, support for US crude values was mitigated by subdued European and Asia-Pacific demand due to ample supply and unfavorable arbitrage economics.

Canadian Crude (TMX & Diffies)

Canadian crude differentials firmed across the board as Strait of Hormuz transits fell sharply. Heavy Canadian crude out of the 890,000 b/d Trans Mountain system gained ground for a second consecutive session. September-injection Cold Lake was assessed at September CMA –7.90 fob Vancouver (November Ice Brent –12.75). Mixed Sweet (MSW) at Edmonton firmed $1.05/bl to a $2.50/bl discount to August CMA Nymex. Western Canadian Select (WCS) rose 45¢/bl to a $13.75/bl discount. Greenfire Resources is acquiring Connacher Oil and Gas for C$1.3bn, with pro forma production at 34,000 b/d and plans to reach 65,000 b/d.

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Latin American & Atlantic Basin Crude

Light sweet Medanito remained under pressure, assessed at a midpoint discount of $7.50/bl to November Ice Brent, down 50¢/bl. Argentinian grades continued to face weak demand amid limited liquidity. Colombian Castilla and Vasconia began transitioning into the September cycle with limited discussion. Renewed Hormuz tensions could strengthen Latin American crude demand as European refiners may rely more on Atlantic Basin supplies. Chinese buyers secured about 6mn bl of Brazilian crude for late-September to early-October arrival, including Tupi-like, Sepia and Lapa grades. With ~12mn bl already booked for September arrival, Chinese refiners appear largely covered.

USGC Sour Crude & Refining Margins

US sour crude values mostly firmed against the light sweet benchmark, supported by higher refining margins which rose to their highest in over four years. Heavy Louisiana Sweet gained the most, trading flat to the DSW benchmark (up from a ~$2.45/bl discount on Friday). Mars traded almost 40¢/bl stronger at $2.75–$3.50/bl discounts. Thunder Horse narrowed by about $1.10/bl to a $1.25/bl discount to Cushing. Canadian heavy sour Cold Lake at the Texas Gulf coast climbed to $6.30–$6.50/bl discounts to CMA Nymex, up from ~$7.55/bl volume-weighted average discount on Friday.

Middle East Gulf Crude (Saudi, UAE, Kuwait, Iraq)

Saudi Aramco will send ~774,000 b/d of August-loading crude to China, rebounding from a record low of 387,000 b/d in July. At least one Chinese refiner may receive allocations from Ras Tanura for the first time since March. Abu Dhabi's Adnoc offered an alternative delivery basis from Fujairah for offshore grades at a $1/bl premium (Umm Lulu) and 80¢/bl (Upper Zakum, Das) above Dubai monthly average. The August OSP for Murban was set at $80.01/bl, down $21.47/bl. Kuwait's KPC cut its August OSP for Asia to a six-year low at −$5/bl (KEC) vs Oman-Dubai. Iraq's Basrah Medium was set at a $6.50/bl discount to Oman-Dubai.

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North Sea & European Crude

Brent lost ground as BP again failed to find a buyer in the afternoon window. Offers for BFOET cargoes were heard at Dated +0.15 to +0.85 cif Rotterdam. Brent's price dropped by 33¢/bl from previous assessments. October North Sea forward price surged $3.22/bl to $79.03/bl, but front-week CFDs declined. Traders noted uncertainty over August-loading crude supply to Europe; refiners will likely rely on Atlantic Basin, West African and South American crude if Hormuz remains blocked. Buzzard's share of Forties fell to 20% (down 7 pp week-on-week), with July forecast at 18.8%.

Russia-Caspian & CPC Blend

Exports of CPC Blend are scheduled to edge slightly lower to ~1.68mn b/d in August (down ~1% from July program). June exports were ~1.7mn b/d, 5% higher than plan. Higher exports reflect diversion of Kazakh crude that previously went via Druzhba to Germany. CPC Blend was assessed at −$5.00/bl to North Sea Dated. Around half of all August-loading cargoes were placed in pre-programme trade before loading dates were issued. Urals pricing faces EU sanctions review: Commission proposed freezing the cap at $44.10/bl until January 2027, but maritime nations push for a shorter freeze.

Bunker Markets (Asia-Pacific)

Singapore VLSFO: Rose $21.35/t to $658.89/t dob (7 deals, tight prompt availability). Singapore HSFO: Rose $11.14/t to $486/t dob. Scrubber spread widened to $172.89/t. LSMGO: Rose $48.58/t to $1,014.75/t dob. South Korean ports saw VLSFO offers at $708/t dob (Yeosu) and LSMGO at $975/t dob. Marine biodiesel B24-VLSFO rose $24.25/t to $885.75/t dob. Most buyers remained cautious, awaiting clearer market signals.

Asia-Pacific Refined Products & LPG

Asia benzene rose sharply with crude: GS Caltex bought fob South Korea August-loading cargoes at $910–913/t. Domestic Chinese benzene rose to Yn7,550–7,600/t (import parity ~$969/t). Asia SM rose with benzene, cfr China August at $1,070–1,105/t. For LPG, August AFEI propane swaps gained $18/t to $631/t. Chinese buyers showed tepid demand; Ningbo Kingfa issued a tender for 46,000t propane. Propane AFEI rose $17/t to $650.25/t (7–22 Aug average). Butane AFEI similarly rose $17/t to $665.25/t. Trade slowed after the Hormuz announcement.

Geopolitical & Sanctions Landscape

Iran declared the Strait of Hormuz closed until further notice. President Trump announced resumption of a naval blockade of Iran (previously in effect 13 Apr–18 Jun). US Central Command (Centcom) disputed the closure, stating 'Traffic is flowing,' though AIS data indicated no visible transits. Opec+ production rose to 31.95mn b/d in June (highest since Feb war began) but gains are at risk. The IEA revised down 2026 global crude runs for the third month. EU states seek a new Russia sanctions package; US senators advanced legislation to sanction Russian oil and LNG buyers. Japan's Meti confirmed no major policy changes, maintaining crude purchases from non-Hormuz routes, with July imports expected to surpass demand.

Outlook: The market remains highly sensitive to the evolving US-Iran conflict and the practical status of the Strait of Hormuz. While futures rallied sharply, physical differentials in several basins (especially West Africa and Argentina) remained under pressure from ample supply and tepid demand. The divergence between paper and physical markets suggests that actual supply disruption remains partly priced in, but any escalation in military operations could trigger further upside. Key watchpoints: actual tanker transit data through Hormuz, Chinese crude buying patterns for late August, and EU/Russia sanctions developments on July 15.

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Geneva-based trading firm Vitol is taking early steps to establish an office in Venezuela, according to three sources familiar with the plans, as global commodity traders deepen their involvement in the OPEC nation’s oil exports under a deal struck between Caracas and Washington earlier this year.

Vitol, Trafigura, and other trading companies have been handling the majority of Venezuela’s oil output this year through agreements with state-run PDVSA, overseen by the administration of President Donald Trump. These deals have redirected crude that was previously destined for China to the United States, Europe, and the Caribbean.

An initial $2 billion oil supply agreement signed in January with Vitol and Trafigura, covering up to 50 million barrels of exports via the traders, has since been expanded to over 100 million barrels, U.S. and Venezuelan officials have stated.

Despite the swift expansion of oil trading deals, foreign investment encouraged by Washington has progressed at a slower pace, with companies signing non-binding letters of intent and technical agreements while evaluating conditions before deciding to return to Venezuela or expand their existing operations.

Vitol’s move to bolster its position in the South American nation signals confidence in the oil pact’s continuity and may open doors to further business prospects, the sources said. The Caracas office would initially create around a dozen jobs, primarily in trading roles, according to one source.

Henry Medina, Vitol’s head of Latin America, told Reuters in an email that the company has maintained a strong relationship with PDVSA for many years, without detailing specific plans. “We look forward to building on this and developing additional partnerships in Venezuela, as well as a meaningful presence in the country,” he said.

The Venezuela unit is expected to be led by Mario Pantoja, who spent 35 years at Chevron and most recently managed the company’s oil marketing operations in Venezuela, two sources noted. Chevron began expanding its workforce in the country after receiving a broad U.S. license for Venezuela in late 2022, giving it a head start when the U.S. announced a $100 billion energy reconstruction plan for Venezuela and began easing sanctions this year.

Chevron now competes with Vitol and Trafigura for market share while negotiating oilfield expansions in Venezuela that are expected to boost output and exports.

Trafigura has already opened a Caracas office following its oil deal with Venezuela and currently has two employees there. Most of its regional traders are based in Montevideo, Uruguay, where back-office functions are handled, separate sources said. Trafigura declined to comment on its Venezuela plans. Chevron and PDVSA did not immediately respond to requests for comment.

At least three smaller trading firms—George E. Warren, BGN International, and Novum Energy—have also participated in Venezuelan oil and fuel exports this year, while some U.S. and Indian refiners have started purchasing crude cargoes directly from PDVSA, according to shipping records and tanker monitoring data.

Venezuela produced 1.18 million barrels per day (bpd) of crude in May, per figures reported to OPEC, and forecasts reaching 1.37 million bpd by year-end. In June, it exported 1.2 million bpd of crude and fuel, with trading firms handling 64% of the total, according to the data.

The inaugural dialogue between senior U.S. and Iranian officials concluded in Switzerland on Monday, according to mediators, following a strained start marked by Tehran’s announcement that it had once again blocked the Strait of Hormuz and U.S. President Donald Trump reiterating his warnings of renewed strikes against Iran.

A joint declaration from mediating nations Qatar and Pakistan indicated that the two sides had consented to a pathway toward a final agreement within 60 days. The statement, issued by Qatar’s foreign ministry, added that technical discussions would proceed for the remainder of the week at the Qatari-owned Swiss mountain retreat in Buergenstock. It also noted that the parties had established a framework to halt hostilities in Lebanon and initiated a communication channel to facilitate safe transit for commercial vessels through the disputed waterway.

U.S. Vice President JD Vance initiated talks with Iranian representatives on Sunday, operating under the provisions of a memorandum of understanding reached the previous week to prolong a fragile ceasefire from April by at least another 60 days. The negotiations continued into the early hours of Monday. In a social media post, Iranian Foreign Minister Abbas Araqchi stated that his country had obtained exemptions for oil and petrochemical exports, the liberation of certain frozen assets, and the initiation of a reconstruction and development scheme for Iran. The White House declined to comment immediately when asked whether high-level discussions had concluded for the time being.

Shortly before the talks formally commenced on Sunday, Fox News reported that Trump had informed Iranian officials that “you won’t have a country” if they attempted to shut the strait again. Fox News also noted that Trump repeated an earlier warning that the U.S. would seize control of the waterway and potentially impose its own toll. Trump explained that he had agreed to last week’s memorandum to prevent a global economic downturn driven by soaring oil prices resulting from the strait’s closure. Oil prices had declined over the past week to levels not seen since the conflict erupted on February 28 with U.S.-Israeli assaults on Iran. Following the joint statement, Brent crude futures dropped further, falling more than $1 to $79.44 per barrel.

U.S. and Iranian sources offered differing accounts of the discussions in Switzerland. Iran’s semi-official Tasnim news agency, citing an informed source, reported that after Trump’s threats became public, the Iranian delegation declined to re-enter the negotiation room, though messages continued to be exchanged through Pakistani and Qatari mediators. According to the Tasnim source, the Iranians insisted that commencing talks on nuclear issues required the fulfillment of other components of the MOU, including the release of frozen assets and U.S. waivers allowing Iranian oil exports. A U.S. diplomat involved in the talks, however, told Reuters that “the Iranians never left and are still here meeting and negotiating deep into the night. We’ve talked about the Strait, Lebanon, nuclear issues, and details of implementing the MOU, among other topics.”

The accord aims to reopen the Strait of Hormuz, a critical chokepoint for global energy shipments, and put an end to all hostilities, including in Lebanon, where Israel has persisted with deadly strikes as Tehran’s ally Hezbollah retaliates against Israeli positions. Iran, contending that the U.S. had failed to uphold its pledge to halt fighting in Lebanon, announced over the weekend that it had once again blocked maritime traffic through the strait and that Sunday’s talks would not address substantive issues like Iran’s nuclear program. At the talks in Switzerland, where U.S. and Iranian officials met with Qatari mediators present, Vance downplayed the significance of the violence in Lebanon, stating that progress had been made toward ending the conflict there. “These things are always a little bit messy,” he remarked.

Back in the U.S., Trump threatened to resume attacks on Iran if it did not control its allies. “Iran must immediately stop their highly paid PROXIES in Lebanon from causing trouble,” Trump wrote on social media, seemingly referring to Hezbollah. “If they don’t, we’ll hit Iran very hard again, just like we did last week, only harder!!!” Despite the threats, Vance told reporters that the U.S. president had “asked us to turn over a new leaf to transform our relationship with the people of Iran.” A U.S. diplomat late Sunday mentioned that discussions involved “clarifying some of the confusing messaging from Iran on the Strait and building deconfliction mechanisms to ensure the Strait will remain fully open.”

Iran cited the situation in Lebanon as justification for closing the strait. Despite the announcement of a new ceasefire in Lebanon on Friday, there has been little indication of an end to the fighting there. Iran stated on Saturday that, as a result, it had once again shut the strait, whose closure for nearly four months had caused the most significant disruption to global energy supplies in history. Data from analytics firm Kpler indicated that only five vessels passed through the strait on Sunday, a sharp decline from the 26 ships observed the previous day. The data may exclude ships that turned off their transponders while traveling through the Gulf.

Sunday appeared to be Lebanon’s quietest day in some time, with no reports of major violence by nightfall, following two days of intense Israeli strikes and Hezbollah fighters’ fire on Israeli positions. More than 1 million people have fled their homes in Lebanon since Israel invaded in March to pursue Hezbollah fighters, who had fired across the border in support of Tehran. Reuters journalists in southern Lebanon on Sunday observed some of the heaviest traffic since the memorandum was signed, with residents returning to their homes. Some stood beside cars backed up on the highway, waving Hezbollah flags.

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China is intensifying its natural gas drilling operations in deeper and older shale formations within the Sichuan basin, a move that could boost domestic production of this unconventional fuel by over a third by 2035, according to a Sinopec expert and industry consultants.

As shale gas output falls short of government targets and accounts for only 10% of China’s total gas production, state-owned oil companies are targeting layers approximately 5,000 meters (16,400 feet) underground—among the world’s deepest—to counter slowing growth.

Sinopec recently certified 236 billion cubic meters (bcm) of proven gas reserves at the Ziyang Dongfeng project, a well about 4,500 meters deep, marking a breakthrough in ultra-deep shale. Similarly, PetroChina made a discovery of comparable size in 2023 in a nearby Ziyang well. Both companies are extracting from the Qiongzhusi Cambrian formation, located between Chengdu and Chongqing in eastern Sichuan basin.

Having drilled over 100 wells, the firms are now scaling up development, which is expected to cost billions of dollars. Commercial-scale operations should be realized within two to three years, as per state oil company officials. Outside China, the only analogous ultra-deep shale play is Western Haynesville in Texas at around 5,200 meters, noted for elevated costs and extended drilling timelines, said Rystad Energy.

China ventured into commercial shale gas production in 2014 and set targets of 30 bcm by 2020 and 80-100 bcm by 2030. Initial output soared to 20 bcm by 2020 from shallower formations under 3,500 meters, but growth has since slowed to roughly 4% annually due to rapid depletion, analysts note. Despite being the world’s second-largest producer at about 27 bcm in 2025, this amounts to less than 5% of U.S. output, hindered by complex geology and resource concentration in the densely populated, mountainous Sichuan basin.

Disappointing early ventures by international firms like Shell and BP left development to Chinese state giants. Beijing views shale, along with deep coal-bed gas, as a way to reduce expensive liquefied natural gas imports and strengthen negotiating positions for pipeline gas from Russia and Turkmenistan, analysts explain.

Chen Lin, an upstream researcher at Rystad Energy, estimates that deeper exploitation could increase China’s shale gas output by nearly half from 2025 levels, reaching 40 bcm by 2035, or 13% of forecast national production.

The Qiongzhusi formation, spreading over 10,000 square kilometers, holds an estimated 10 trillion cubic meters of gas and could yield 30-50 bcm annually, though timing depends on investment, said Zhao Qun, a geologist at PetroChina’s Exploration and Development Institute.

Sinopec’s chief scientist, Guo Tonglou, stated that Qiongzhusi, the world’s oldest shale at 540 million years, could produce 10-15 bcm annually by 2035. Compared to shallower plays like Fuling, China’s first commercial project, Qiongzhusi features thicker and higher-quality formations, albeit with higher per-well costs and increased engineering challenges due to depth, he added.

Both Sinopec and PetroChina are developing new drilling techniques, particularly to prevent gas leaks between multi-layer horizontal wells, according to Zhao and Guo. Wood Mackenzie analysts project Qiongzhusi could add 10 bcm by 2035, while overall shale production might more than double to 62 bcm, or 18% of total output, driven by potential in existing shallower formations.

Higher costs are a factor. Wood Mackenzie estimates breakeven for ultra-deep assets at $5-$5.50 per million British thermal units (mmBtu), compared to $4 for shallower shale, $3-$4 per mmBtu in Argentina’s Vaca Muerta, and $2.70 per mmBtu in U.S. shale. Meanwhile, Asian spot LNG prices have nearly doubled to around $19 per mmBtu since the Iran conflict.

A Qiongzhusi well costs 90-100 million yuan ($13.31-$14.79 million), 45% more than a shallower well, but higher per-well output and recovery rates could make ultra-deep shale economically viable, said Sinopec’s Guo. “China is pursuing deep shale because of the limitations of our resource base,” he explained. “But if we can succeed through technological improvement and cost management, it will have broader global implications by unlocking vast resources.”

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On Sunday, U.S. and Iranian officials confirmed that a peace framework has been reached to end their ongoing conflict, lift the American blockade of Iran, and reopen the Strait of Hormuz. The reopening of this vital waterway is expected to drive down energy prices as oil shipments resume.

U.S. President Donald Trump announced on his Truth Social platform Sunday, “The Deal with the Islamic Republic of Iran is now complete.” His statement followed an announcement by Pakistan Prime Minister Shehbaz Sharif, whose nation mediated the talks, confirming the deal was reached early Monday local time.

Sharif stated that the agreement will be officially signed on Friday in Switzerland. While precise details remain undisclosed, Sharif noted on X that the pact mandates an immediate and permanent halt to military operations across all fronts, including Lebanon. Lebanon had been a contentious issue in negotiations, as Israel and Hezbollah continued their attacks despite calls from Trump and others to cease.

Trump declared that the Strait of Hormuz, a critical global energy route effectively closed by Iran for months, will reopen on Friday. He also ordered the end of the U.S. blockade of Iranian ports. “Ships of the World, start your engines. Let the oil flow!” Trump wrote.

Oil prices dropped in response. Brent crude futures fell 4% in early Monday trading, while U.S. West Texas Intermediate declined over 4.6%.

Iran’s Deputy Foreign Minister Kazem Gharibabadi indicated that a broader agreement, including sanctions relief, will be negotiated during a 60-day ceasefire period. Sources previously told Reuters that the fate of Iran’s nuclear program will also be addressed in those discussions.

Since U.S. and Israeli forces first attacked Iran on February 28, thousands have died, primarily in Iran and Lebanon. Iran has retaliated by striking Israel and Gulf states hosting U.S. bases, effectively blockading the Strait of Hormuz and raising global energy costs. U.S. forces responded by blocking Iranian ports.

The Iran has become a domestic political challenge for Trump and congressional Republicans, as polls show Americans increasingly frustrated by rising gas prices ahead of November’s midterm elections.

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OPEC+ on Sunday approved a fourth consecutive monthly increase in oil output targets.

The war has severely disrupted oil shipments through the Strait of Hormuz, triggering an unprecedented global supply crunch. Key OPEC+ producers, including Saudi Arabia, have struggled to meet customer demands fully since late February. The situation worsened for the alliance when the United Arab Emirates exited OPEC after nearly six decades.

A core group of seven OPEC+ members—comprising OPEC nations and allies such as Russia—have raised their output quotas by nearly 600,000 barrels per day (bpd) from April through June. However, actual production has plummeted due to export restrictions from Gulf states, averaging 33.19 million bpd in April, down from 42.77 million bpd in February, according to OPEC data.

Impact of Production Target Increase

On Sunday, these seven nations agreed to boost targets by an additional 188,000 bpd starting in July, as stated by OPEC. This increment matches June’s hike, which had been reduced from earlier monthly increases of 206,000 bpd in May and April to account for the UAE’s departure.

An Iraqi oil ministry spokesperson confirmed to the state news agency that Iraq’s output quota would rise by 26,000 bpd from July under the new deal.

“An OPEC+ production increase means very little while the Strait of Hormuz remains closed,” remarked Jorge Leon, an analyst at Rystad and former OPEC official. “Once the Strait reopens, the market could swiftly shift from fearing a shortage to fearing a surplus.”

On Friday, oil prices dipped to around $93 per barrel as traders grew more optimistic that renewed U.S.-Iran hostilities were becoming less probable. Prices had hovered near $72 before the war erupted.

OPEC+ Nearing Completion of 2023 Output Cut Reversal

The seven countries are ramping up production as part of a gradual reversal of the 1.65 million bpd output cut agreed upon in 2023, which initially included the UAE. According to Reuters calculations, as of July, these nations have roughly 567,000 bpd of the original reduction left to reintegrate into the market, factoring in the UAE’s exit as of May 1.

This implies the remaining cuts could be fully unwound by the end of September if OPEC+ maintains monthly increases of around 188,000 bpd for August and September.

The seven members—among the 21 in OPEC+—who convened on Sunday are Saudi Arabia, Iraq, Kuwait, Algeria, Kazakhstan, Russia, and Oman. In recent years, only these seven, plus the UAE when it was a member, have been involved in shaping the group’s output policies.

During a separate gathering of all OPEC+ members on Sunday, ministers left the alliance’s broader output policy unchanged, which remains in effect through the end of 2026, according to a separate OPEC+ statement.

The group is currently conducting a review of members’ oil production capacity to establish a reference for 2027 production baselines, which will determine future quotas. Sunday’s statement underscored the importance of finalizing this assessment.

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Global oil stockpiles may fall to dangerously low levels ahead of the peak summer driving and flying season if current drawdown rates persist, according to the head of the International Energy Agency’s oil industry and markets division on Tuesday.

Fuel demand typically spikes during the Northern Hemisphere summer as people travel more for holidays.

“We’re seeing stock draws continuing into the summer, with the possibility or likelihood that we reach critical levels or historical lows just ahead of the peak summer demand,” Toril Bosoni said.

In a best-case scenario, it could take six to eight months to reopen the Strait of Hormuz if an agreement were reached today, Bosoni stated at the S&P Global Energy Middle East Petroleum and Gas Conference in London.

That situation could make another IEA-coordinated emergency stock release possible, though it is not currently under discussion since about half of the initial 400-million-barrel coordinated release from March has yet to reach the market, she added.

“Emergency stock releases are only a temporary stop-gap measure; they won’t solve this problem. The scale of supply losses is so large that reduction must come from the demand side,” Bosoni said.

Demand destruction occurs when high prices force consumers to cut purchases until supply and demand rebalance.

The IEA sees higher prices and a weaker economic outlook translating into reduced demand for transport fuels, Bosoni noted, adding: “The biggest adjustment factors we’ve seen in the markets have come from demand.”

Chinese crude imports were 6 million barrels per day lower in May compared with March, which acted as a balancing factor in markets and explains weaker prices despite the Strait of Hormuz closure.

Brent futures traded near $94 per barrel by 1139 GMT on Tuesday, between their pre-conflict level of around $70 but far from their 2022 high above $126.

Gulf oil producers have lost about 14 million barrels per day of supply since the end of February, the IEA said.

Meanwhile, producers in the Americas have boosted supplies, with the United States, Argentina, Brazil, and Venezuela all surprising to the upside.

The IEA forecast supply growth in the Americas at 1.5 million barrels per day in its latest monthly oil market report, up 600,000 barrels per day from the start of 2022. But those gains only marginally offset volumes lost to the global market from east of Suez, Bosoni said.

China’s seaborne crude oil imports plunged to a near-decade low in May.

May’s seaborne crude arrivals were 6.36 million barrels per day (bpd), a decrease from April’s 8.10 million bpd and the lowest since October 2016, according to Kpler data. Imports also fell by nearly half compared to February’s 11.39 million bpd, the last full month before the U.S. and Israeli attack on Iran on February 28.

Media and market commentary suggest China’s import decline is helping Asia adjust to the loss of at least 10 million bpd of crude due to the effective closure of the Strait of Hormuz. However, this is a secondary effect, not a result of Beijing’s altruism, as it is reacting to changing prices and supply dynamics.

The Middle East conflict is the main factor behind the collapse in China’s oil imports. China’s response to the loss of as much as 10% of global crude supplies from the Iran conflict is two-fold.

First, China typically cuts imports when prices rise sharply. Following Russia’s invasion of Ukraine in February 2022, Brent crude futures peaked at $139.13 a barrel in March 2022, causing China’s seaborne imports to drop from 10.84 million bpd in January 2022 to 8.07 million bpd by June.

While a swing of up to 2 million bpd in monthly imports is normal, the 5.5 million bpd decline from February to May this year suggests other factors are at play.

Chinese refiners likely struggled to source crude from their usual suppliers, especially those affected by the closure of the Strait of Hormuz. Imports from Iraq dropped from 790,000 bpd in February to 60,000 bpd in May, and those from Kuwait fell from a recent high of 522,000 bpd in October to zero in May, according to Kpler.

Russian crude imports also decreased, with seaborne arrivals dropping to 1.07 million bpd in May, the lowest since August, down from 1.96 million bpd in February.

Before, China was the primary buyer of Russian crude. However, the U.S. administration eased sanctions on Russian oil to address the crude supply shortfall caused by its war against Iran. This allowed India, Asia’s second-biggest buyer, to resume buying Russian crude, with arrivals reaching a record high of 2.17 million bpd in May, double February’s figure.

Higher prices and supply issues help explain the decline in China’s May crude imports, but not how the country is adapting to such a massive drop.

It is likely that refiners have adjusted their product mix to maximize middle distillates like diesel and jet fuel, as well as gasoline. Light distillates for petrochemicals are being squeezed, and plastics producers are likely using up inventories.

China is unlikely to be using its Strategic Petroleum Reserve (SPR) yet, with refineries instead drawing down commercial inventories of crude and refined products. The sharp drop in refined product exports to 463,000 bpd in May from 777,000 bpd in February also keeps more fuel available domestically.

However, commercial inventories will likely be depleted soon. China will eventually have to increase crude oil imports, cut refinery processing rates sharply, or tap into the SPR, or employ a combination of these measures.

Pakistan is working to enhance its energy security by expanding its domestic storage capacity for crude oil and refined products, according to a government document shared with major oil producers and trading firms. The country currently lacks strategic petroleum reserves, despite relying on the Strait of Hormuz for up to 90% of its oil and natural gas imports, which leaves it vulnerable to supply disruptions. The International Monetary Fund program further restricts the ability to build expensive state-owned emergency stocks.

The document, outlines the energy ministry’s plan to establish strategic petroleum reserves and commercial storage through bonded terminals, refineries, and oil marketing companies. The plan also includes increased oil and gas exploration and production, refinery upgrades, and downstream sector consolidation.

The ministry shared its proposed framework with Saudi Aramco, Abu Dhabi National Oil Corp, Kuwait Petroleum Corp, QatarEnergy, PetroChina, oil trading firms Vitol and Trafigura, and storage operator Vopak. While Trafigura, Vitol, and Aramco declined to comment, the other companies and Pakistan’s petroleum ministry did not respond to requests for comment. Petroleum Minister Ali Pervaiz Malik acknowledged the challenges of building reserves amid fiscal constraints but indicated the government’s aim to expedite the process.

The bonded storage plan would allow international suppliers and traders to hold petroleum stocks, creating commercial inventories that could support domestic supply during emergencies. Companies might also be permitted to store fuel for re-export. The document does not specify details such as incentives, pricing, or investment obligations, and the ministry aims to finalize the bonded storage framework for suppliers by June.

The document also highlights Pakistan’s vulnerabilities, including inadequate port infrastructure, limited ship-to-ship capacity, and insufficient storage. To fund its strategic reserves, the government plans to create a ring-fenced fund, financed by a 10-rupee per liter levy on petroleum, beginning July 1, expected to generate approximately $700 million annually. Pakistan currently taxes diesel at 58 rupees per liter and gasoline at 102.17 rupees per liter.

Additionally, the government intends to mandate that refineries hold 15 days of crude stocks and oil marketing companies maintain 30 days of finished products, with the implementation phased in by June 2028. The document further proposes an energy infrastructure corridor around Hub and Port Qasim, including single-point mooring, storage, and pipeline connectivity, to reduce dependence on smaller, more expensive shipments.

Indian state-owned fuel retailers announced on Monday another increase in fuel prices, marking the fourth such increase this month. Diesel prices rose by 2.71 rupees ($0.0283) per liter, and petrol prices increased by 2.61 rupees, according to dealers. These hikes are aimed at offsetting losses incurred due to escalating crude oil costs, influenced by the ongoing situation in Iran.

The state-controlled fuel retailers, which dominate 90% of the market, initiated these price adjustments on May 15 following the conclusion of elections in several key states. Since that time, companies like Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp have collectively increased diesel prices by roughly 8.6% and petrol prices by approximately 7.8%.

Consequently, a liter of petrol in New Delhi will now cost 102.12 rupees ($1.07), while diesel will be priced at 95.20 rupees ($0.9949) per liter. India, the world’s third-largest oil importer and consumer, is facing challenges from rising crude prices and supply chain disruptions, exacerbated by the closure of the Strait of Hormuz.

To address these issues, New Delhi has implemented austerity measures to curb fuel consumption and manage its oil import expenses, as policymakers prepare for a protracted energy crisis. Fuel prices vary across different states due to differing local tax rates. Additionally, losses for state retailers have increased as some bulk consumers have shifted to more affordable retail pumps, which has resulted in localized shortages.

Indian Oil Corp reported that its retail diesel sales for the period of May 1-22 rose by 18% compared to the previous year, while petrol sales saw an increase of 14%.

Two Chinese supertankers, laden with a total of 4 million barrels of Middle Eastern crude oil, departed on Wednesday. Their exit followed a wait of over two months in the Gulf.

These vessels are part of a small group of supertankers transporting Iraqi crude oil out of the Gulf this month. This movement is occurring via a transit route mandated by Iran.

The Chinese-flagged Very Large Crude Carrier (VLCC) Yuan Gui Yang loaded 2 million barrels of Iraqi Basrah crude on February 27, shortly before the outbreak of the U.S.-Israeli tensions involving Iran, according to the data. Chartered by Unipec, the trading division of Sinopec, Asia’s largest refiner, the ship is projected to arrive at Shuidong Port, near Maoming city in southern Guangdong province, on June 4 to unload its cargo.

The Hong Kong-flagged VLCC Ocean Lily, owned by Chinese firm Sinochem, took on 1 million barrels each of Qatari al-Shaheen and Iraqi Basrah crude between late February and early March, the data indicates. It is expected to arrive at Quanzhou Port in eastern Fujian province on June 5 for cargo discharge.

Sinopec, Sinochem, and Cosco Shipping, which own and manage the Yuan Gui Yang, have not yet provided comments. Last week, the VLCC Yuan Hua Hu also exited the strait, carrying 2 million barrels of Iraqi oil and destined for Zhoushan Port in eastern China.

Shipping data from Kpler and LSEG revealed on Monday that three crude oil tankers exited the Strait in the past week, including two on Sunday, with their tracking systems disabled to mitigate potential Iranian attacks. This action highlights a growing tendency to maintain Middle East oil exports despite regional tensions.

Two very large crude carriers (VLCCs), the Agios Fanourios I and the Kiara M, each transporting 2 million barrels of Iraqi crude, traversed the strait on Sunday, according to the data.

The Agios Fanourios I is scheduled to deliver its cargo to the Nghi Son Refinery and Petrochemical facility in Vietnam on May 26. The tanker had previously failed to transit the strait at least twice since loading Basrah Medium crude on April 17. Eastern Mediterranean Maritime, which manages the Agios Fanourios I, and the Nghi Son facility, did not immediately respond to requests for comment.

The Kiara M also exited the Gulf on Sunday with its transponder off, as indicated by Kpler data. The destination for the San Marino-flagged tanker, which is carrying 2 million barrels of Basrah crude, is unknown. Managed by a Shanghai-based firm and owned by a Marshall Islands-registered entity, the companies could not be reached for comment as their contact information is not public.

Earlier, the VLCC Basrah Energy, loaded with 2 million barrels of Upper Zakum crude from Abu Dhabi National Oil Co.'s (ADNOC) Zirku terminal on May 1, exited the Strait of Hormuz on May 6, according to Kpler data. The Panama-flagged vessel unloaded its cargo at the Fujairah Oil Tanker Terminals on May 8. It remains unclear which company chartered the tanker, which is owned and managed by Sinokor. Sinokor did not respond to requests for comment outside of business hours.

ADNOC and its customers have recently dispatched several tankers loaded with crude oil through the Strait, aiming to transport oil impacted by the Middle East conflict.