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• Quota-participating OPEC+ crude output rose +627 kbpd in August according to official secondary source aggregate estimates published in OPEC’s Monthly Oil Market Report (MOMR), with the bulk of those gains coming from Iraq which continues to drive output higher via aggressive cargo discounting and heavy Hormuz shuttle trade activity.

• The biggest news in this MOMR (included in a footnote rather than the main tables, far more discussion below) was the revelation that Saudi crude production cratered 1,897 kbpd on the month to average 6,238 kbpd in August on the back of the Houthi maritime ban and escalating attacks against Saudi Red Sea coastal infrastructure. This is both lower than the April 2026 nadir (6,316 kbpd) and is, in fact, the lowest monthly average crude production Saudi Arabia has maintained since Desert Storm in 1990.

• Iranian crude production continues to collapse, with estimated output falling ~400 kbpd in August to just more than 2 MMbpd, the lowest level since 2020, as the US blockade continues to bite.

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Every week, I summarize and analyze developments in flat crude prices, calendar spreads, high-frequency inventories, refined products, and positioning data, as well as a taste of the themes I’ve been thinking about or following closely—including our ongoing tracking of shipping flows throughout the Middle East.

Paid subscribers can access the latest weekly update of the detailed 40-page PDF Market Positioning Data Deck at the bottom of this report.

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Summary

Flat Prices rose ~$7/bbl for Brent to end above $96/bbl amidst fresh military escalation in the Gulf, a spiralling refined products crisis, and mounting signs of stress in prompt crude availability; this price move marks a full unwinding of the prior week’s pullback, the highest weekly close since late-July, and leaves prices within less than a dollar of the highest weekly close since May.

Timespreads ratcheted into steeper backwardation, once again, across all major crude grades this week as WTI, Brent, and Dubai crudes all sport prompt backwardation of ~$3–5/bbl (and in that order); this tells us that, while not as tight as diesel (prompt spread > $6/bbl), crude markets remain physically tight in their own right.

Inventories data showed draws across all major tracked commercial hubs, with stocks of key road fuels continuing to show acute strain globally; US crude stocks fell for the first time in a month, though desperately-low diesel stocks inched higher for the first time since July.

Refined Products markets saw diesel reach all-time high crack spreads following confirmation that Moscow would extend its diesel ban through the end of the month while prompt gasoline crack spreads rolled off with the end of driving season but remained ~4x higher than the seasonal average, still pushing $40/bbl vs Brent.

Market Positioning data confirmed that speculators were once again notable net buyers of crude length and that while some upside room remained the balance of position-normalization risks is increasingly to the downside; in the world of refined products, speculative length in gasoline is enormously high (top 4% over past 20 years) and risks a sharp reversal, while still only moderate net length in middle distillate contracts reaffirms diesel’s fundamentally-driven rally.

As Well As current Hormuz oil flow is likely around 8 MMbpd and my thoughts on Rosneft’s chief highlighting China’s newly dominant role in Hormuz oil market management as overtaking OPEC’s traditional perch.

What Happened This Week

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• North American petroleum liquids production rose +157 kbpd m/m to 31,242 kbpd in June, up +936 kbpd y/y, as a rebound in Canadian production from seasonal maintenance helped offset flagging upstream growth in the US.

• Continental petroleum product consumption rose seasonally by +607 kbpd to 25,175 kbpd in June, but that was actually down 483 kbpd on the year thanks to across-the-board pullbacks in consumer gasoline demand amidst the high prices; overall consumer fuels faced a more notable slowdown while the demand for industrial fuels proved more resilient.

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Every week, I summarize and analyze developments in flat crude prices, calendar spreads, high-frequency inventories, refined products, and positioning data, as well as a taste of the themes I’ve been thinking about or following closely—including our ongoing tracking of shipping flows throughout the Middle East.

Paid subscribers can access the latest weekly update of the detailed 40-page PDF Market Positioning Data Deck at the bottom of this report.

🎙️ Our summer interview hiatus is finally over and we’re back with another episode of the Oil Ground Up podcast to speak with David Weck, chief economist of tanker tracker Vortexa, about plunging volumes of oil on water, sorting fact from fiction on Hormuz and Red Sea shipping activity, and just how scarce the global diesel trade has become.

For more public oil market context, check out my comments to Wall Street Journal (print) concerning the pace of confirmable transits through the Strait and our Q&A in Responsible Statecraft (print) and how oil markets have evolved through the Hormuz crisis.

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Summary

Flat Prices fell ~$5/bbl for Brent to finish just below the $90/bbl mark as markets unwound their prior concern that the promised US sanctions package could re-escalate the conflict as measures proved only incremental and the physical flow of oil through Hormuz continued to rise.

Timespreads continue to indicate modest tightness in prompt crude availability for both WTI and Brent compared to a more notably strengthening market for Middle Eastern-delivered grades; Dubai’s relative strength likely reflects both strong Asian refiner demand and ongoing losses of previously-expected Saudi barrels through the Bab el-Mandeb.

Inventories were mixed between across-the-board headline builds in all major geographies and the fact that builds, especially stateside, came in the form of already-well-supplied products; meanwhile, stocks of far more precarious gasoline and diesel continued to draw down, further tightening those already historically tight road fuel markets.

Refined Products remain far and away the tightest corner of the oil complex, with both gasoline and diesel crack spreads at all-time seasonal highs; diesel margins pulled back very modestly while gasoline cracks leapt higher ahead of contract expiry as US inventories continued to plunge despite the US refining fleet running full-out.

Market Positioning data confirmed that speculators were net sellers of crude over the past week-through-Tuesday; the balance of positioning risks to crude are still to the downside given modestly overextended net length, though some upside room remains should the conflict escalate, whereas both gasoline and diesel are even more acutely overbought and at risk of sharp temporary pullbacks even if fundamentals remain scorchingly bullish.

As Well As more and more oil getting through the Strait of Hormuz (and less through the Red Sea), understanding the balance of incentives and risks influencing the evolution of transit volumes, and the US reportedly musing about quasi-imperial control over a massive chunk of Venezuela’s oil reserves.

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Every week, I summarize and analyze developments in flat crude prices, calendar spreads, high-frequency inventories, refined products, and positioning data, as well as a taste of the themes I’ve been thinking about or following closely—including our ongoing tracking of shipping flows throughout the Middle East.

Paid subscribers can access the latest weekly update of the detailed 40-page PDF Market Positioning Data Deck at the bottom of this report.

For more Public Context, follow along my latest commentary: Drop Site News (video), Financial Post (video), Globe and Mail (print), CBC News (print), Politico (print).

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Summary

Flat Prices rose more than $5/bbl for Brent crude to end the week in the mid-$90s, the highest level in a month, as the US-Iran MOU formally expired with no diplomatic replacement and both sides ratcheted up the rhetorical temperature.

Timespreads were notably split across the major crude benchmarks: Brent saw prompt timespreads and DFLs trade sideways-to-slightly lower, WTI spreads had been weakest but rallied hard ahead of contract expiry, and Dubai spreads are tightest as more Red Sea crude gets pushed north by the Houthi naval blockade into the Mediterranean.

Inventories data leaned bearish—at the headline level—thanks to large inflows of US commercial crude and NGL stocks, though diesel inventories continued to draw to the lowest level for this time of year since 1996; an ARA European build and Singaporean draw offset each other.

Refined Products continue to rally as gasoline looks to end driving season sporting all-time high seasonally-adjusted crack spreads and diesel refining margins have reached the highest level on record on a trailing 10-day average basis.

Market Positioning data revealed that speculators were only modest net buyers of crude, which lessens concerns expressed last week that there was too much froth coming alongside recent price gains.

As Well As digging into the diesel disaster and yet more colour on the ongoing debate about how much oil is really getting out of the Middle East right now.

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Overview

• The petroleum market remained in a Hormuz-driven supply deficit in June, though the combination of a short-lived recovery in Gulf production and China’s ongoing buyers’ strike slacked the market considerably from previously-sharp crisis levels. Onshore petroleum inventories continued to collapse despite the rerouting and alternative-exporter driven surge in oil on water readings.

• Brent crude prices remain in the mid-$90s and prompt backwardation continues to indicate steady supply deficits; contracts swooned through early August as the latest bout of US-Iran diplomatic optimism crested, before rallying again as conflict resharpened and the market began to adapt to the idea of an even longer and more protracted smouldering war in the Gulf.

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Every week, I summarize and analyze developments in flat crude prices, calendar spreads, high-frequency inventories, refined products, and positioning data, as well as a taste of the themes I’ve been thinking about or following closely—including our ongoing tracking of shipping flows throughout the Middle East.

Paid subscribers can access the latest weekly update of the detailed 40-page PDF Market Positioning Data Deck at the bottom of this report.

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Summary

Flat Prices rose $5/bbl this week for Brent crude to finish just below $90/bbl amidst fading hopes of a Hormuz management deal and talk of a far longer conflict, with prices further benefitting from a surge of inbound hot money flow.

Timespreads were split, with prompt timespreads for Brent largely unchanged around $2/bbl, Dubai’s doubling to roughly $3/bbl, and WTI’s gradually easing to around $1/bbl; despite the cross-grade differences, all major benchmarks continue to signal notable supply tightness via elevated—at least by historical comparison—prompt backwardation.

Inventories data was mixed but dominated by the massive 17+ million barrel build in US commercial crude stocks, which was driven by an acute and abrupt swing in the US crude trade balance; that trade balance is shifting the global supply deficit from drawing on US crude stocks toward the rest of the world, that, until recently, the US had stepped in to supply.

Refined Products rallied again after last week’s pullback as US gasoline cracks gained $5/bbl and US diesel margins gained ~$10/bbl to above $90/bbl; stocks of key road fuels are low and refinery runs were roughly 5 MMbpd lower year-over-year in July.

Market Positioning data confirmed that speculators were, once again, sizable buyers of crude futures and options contracts, pushing up the net speculative position as a share of total open interest to its highest level since early June; high speculative positioning, with crude prices still only in the high-$80s, is a downside price risk given a growing volume of capricious positions that are likely to be liquidated en masse when momentum inevitably swings lower again.

As Well As the war that never ends, US Energy Secretary’s 9 million barrel Hormuz exit claim sparks renewed focus on Hormuz outflows, parallel crisis in the Red Sea deepens and Saudi crude loadings struggle, and US asks Ukraine to ease up on CPC terminal attacks.

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Our latest contribution to the Dispatch Energy newsletter, How China Saved the Global Oil Market, is reprinted in full below. You can also listen to the story via the recorded voiceover.

This piece provides a high level overview of our current thinking on the Beijing Swing, which we covered in greater detail in The Beijing Swing, Part 1: Crude Oil and will be covered further soon in deeper follow-up explorations of China’s refined product balances and demand across end-use sectors.

Welcome to Dispatch Energy! Crude oil prices remain below $100 a barrel despite the near-constant closure of the Strait of Hormuz for more than five months. Much of the initial alarm about what such a prolonged closure would mean for global oil prices has simply yet to be realized. Yes, pump prices are still very high thanks to a parallel crisis in refining capacity, as I explored in my last installment of this newsletter. But even including current record-setting refining margins, pump prices are still below where they stood from March to April, much lower than we would expect this long into such an acute supply shock.

Why? A massive reduction in crude oil imports by China, which I’ve dubbed the “Beijing Swing,” has blunted crisis prices. China cut seaborne crude oil imports by 5.4 million barrels per day from prewar levels through June, covering the lion’s share of the unmitigated loss of oil supply stemming from the closure of the Strait of Hormuz. This is a truly staggering volume at more than 40 percent of China’s total prewar imports and roughly equivalent to India’s total petroleum demand. The cutback brought Chinese crude imports to their lowest level since 2015 and reduced seaborne crude oil import demand by more than the collective volume of all International Energy Agency-member state strategic petroleum releases.

How China pulled off this reduction remains hotly debated—as does the impetus behind these actions.

Oil storage facilities in China’s Shandong Province. (Photo credit should read CFOTO/Future Publishing via Getty Images)

The Beijing Swing has been the most important—and broadly unexpected—offset in this crisis. This import pullback initially appeared unremarkable: The early collapse was expected given that China, like the rest of Asia, sources the lion’s share of its crude oil imports from the Middle East. Then, while the rest of Asia’s crude oil imports bottomed out in April to May and recovered through June, China’s imports just kept falling. It was that lack of Chinese competition for increasingly scarce seaborne barrels, combined with the massive release of global strategic petroleum stocks, that facilitated a recovery across Asia. Beijing even cut its seaborne imports of Russian crude from prewar levels, despite the fact that Russian crude oil exports were not only unaffected by the Hormuz shock but have actually risen through the war.

One of the biggest challenges in tracking this shift is that Chinese data is opaque and incomplete; unlike most other major consuming nations, China doesn’t publish official monthly consumption data or any data on stockpiles of crude or refined products—neither commercial nor strategic stocks. As such, we’re left to infer “apparent” demand estimates based on officially reported refined product output (gasoline, diesel, etc.) plus net imports. These apparent demand estimates, which are overwhelmingly driven by domestic refining activity, have fallen at the fastest pace on record.

Broadly, there are two destinations for crude oil in China: refineries, to be transformed into finished consumer products (or petrochemical intermediates), or storage, in China’s burgeoning commercial and strategic stockpiles. Decreased Chinese refining activity explains roughly half of the import cut. Official data from the Chinese National Bureau of Statistics indicate that the country’s refining runs (i.e., the volume of crude oil run through a refinery) fell by 2.7 million daily barrels from prewar levels through June. This represented the steepest contraction in runs on record, surpassing even the depths of COVID-zero in 2022.

The other half of China’s import reduction comes down to its commercial and strategic stockpiles. The critical context here is that China has a truly gargantuan volume of oil in storage and publishes virtually no official data. Estimates of the total volume of crude, derived from satellite imagery, vary but sit around 1.2 billion barrels. The country was actually voraciously stockpiling oil immediately prior to the Iran war amid surplus supply and weakening pricing, providing a key support to an otherwise flagging oil market as I explored in my very first Dispatch Energy contribution.

One of the challenges in parsing this issue is pinning down China’s prewar stockpiles. Estimates based on official Chinese data—domestic crude production, plus net imports and minus refinery runs—indicate that Beijing was stashing 1.7 million barrels per day, on average, in the three months before the closure of the Strait of Hormuz. The challenge is that this estimate is both higher than plausible and very negative for future demand expectations given that those barrels were by definition surplus to China’s prewar needs. Indeed, this estimate implies that, since 2017, Chinese crude inventories have added nearly 3 billion barrels, well above third-party estimates of total Chinese inventories and far larger than the roughly 450 million-barrel assessment using satellite imagery.

Meanwhile, third-party estimates put China’s prewar stockbuilding pace at a far more modest (but still impressive) pace of around 550,000 barrels per day. The challenge here is that this figure leaves a far larger chunk of China’s import reductions unexplained. The unexplained import reduction likely comes down to either 1) larger refining run cuts than official data reflect or 2) larger crude stock draws through June than implied by third-party inventory estimates—possibly due to a release of underground strategic reserves undetectable by satellite inference.

So what’s going on in China’s refined products market? Chinese petroleum product demand is second only to that of the United States and, for much of the past two decades, has made up a material share of global demand growth. On one hand, the collapse in refining runs could reflect the collapse in refining margins. China limited the degree to which domestic pump prices could rise in an effort to blunt the worst of the Hormuz crisis price spike: The country’s guided diesel price (an effective price ceiling) rose roughly 36 percent at its peak compared with a more than doubling of global wholesale prices. The combination of modest domestic product prices and the surging cost of imported crude meant that refining margins collapsed.

China is somehow managing with notably less fuel coursing through its economy, and explanations as to why vary widely. Export bans on refined products like diesel and jet fuel in the opening weeks of the Hormuz crisis can explain roughly 10 percent of the reduction in refining runs—a policy decision that, as discussed last month, has further exacerbated the refining capacity crisis that is keeping pump prices high. Another 10 percent can be explained by reductions in petrochemical output—typically fueled by petroleum products like naphtha or liquefied petroleum gas (i.e., propane)—or substituting natural gas or even coal-derived alternatives for those feedstocks.

Chinese electric vehicle (EV) sales have dominated headlines over recent years but cannot explain an abrupt, nearly 20 percent contraction from prewar levels. While more than half of all new vehicles sold in China are either fully or partially electric, internal combustion engines still vastly outnumber electric upstarts roughly 9-to-1 in the overall vehicle fleet. Still, exploding EV sales in China have undoubtedly weakened Chinese demand growth, and the growth in total EV charging volume is on pace to displace more than 300,000 daily barrels of Chinese gasoline demand this year, according to estimates based on vehicle charging data from the China Charging Alliance. But importantly, this was a preexisting trend rather than a sudden response to the Hormuz crisis.

Similarly, the decline in apparent diesel consumption, also by about 20 percent, can’t be sufficiently explained by observable industrial activity. While some demand weakness can be explained by the prolonged slump in China’s property market and the construction activity that underpins it, this is a yearslong decline rather than a sharp rout. Chinese truck transit data and in-city congestion measures from companies like Baidu—a Chinese technology giant that operates China’s equivalent of Google Maps—show no sudden sharp decline in mobility. Moreover, due to the aforementioned price regulations, Chinese fuel prices have risen through the crisis but nowhere near the levels experienced in the broader market or across U.S. pumps—hardly the stuff of acute price-driven demand destruction.

China could be releasing strategic or otherwise unobservable stockpiles to fill its supply gap. It’s important to stress that there is no evidence that China is releasing strategic stocks of gasoline or diesel; we lack both official data and satellite-based estimates given that most product inventory tanks do not have the floating roof that makes most aerial imagery analysis possible. That said, analysts have long suspected that, in addition to building out strategic stockpiles of crude oil, Beijing has stashed refined products, like gasoline and diesel, to further bolster the country’s energy security blanket. It is possible that China may be drawing down refined product stockpiles to soften the loss of fresh refinery output. This strategy may also extend to petrochemicals: Official Chinese production data shows the output of primary plastics (intermediate precursors) falling faster than the output of plastic products (end consumption).

Either way, unobservable Chinese stockpiles are creating great uncertainty for the global oil market. In the short term, China’s current import cut is inherently unsustainable if unobservable product stocks are being aggressively drawn down to stabilize the domestic economy. In the long term, actual Chinese refined product demand may be lower than expected if what looked like consumption from late 2025 to early 2026 was actually stockpile-building. All we can do is wait for China’s crude-buying behavior over the coming months to reveal a fuller picture of the true state of the country’s opaque domestic stockpiles.

It’s safe to say that China is acting in its own best interest. The most straightforward explanation is that China needs external markets to buy its exports, demand for which would be harmed by a Hormuz-driven recession. Beijing has been attempting to diversify away from the U.S. market amid the off-again-on-again trade war, and the two most obvious large economic blocs to turn to are Asia and Europe. Unfortunately, those two regions were also especially exposed to the Hormuz shock given their extensive dependence on energy trade with the Middle East, meaning that a fuel-price-driven recession would have come at the worst possible time for Beijing’s export ambitions.

But there are countless theories bouncing around among analysts, with more nefarious options including some kind of deal between Xi and Trump or an attempt by Xi to temporarily soften the economic impact in the U.S. only to yank the carpet out from under Trump and hike imports ahead of the midterm elections. While those more tinfoil-hat theories are unlikely, the fact that China could use this immensely powerful energy weapon in ways more harmful to the West should begin sounding alarms for Washington and its allies.

The Beijing Swing has benefited Western consumers—so far. China has demonstrated an ability to swing global oil balances by roughly the same amount as the entire collective OPEC+ producer group. Yet, the U.S. has an uncomfortable history with OPEC+, an organization that often determines production by policy rather than by market signals. It is no doubt concerning that similar market power has now been demonstrated, on the demand side, by Washington’s primary geopolitical rival.

Disclaimer: These materials incorporate third-party data, are provided for informational purposes only, and do not constitute advice or opinion of any kind. Commodity Context does not warrant or guarantee the accuracy or completeness of these materials.

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• Quota participating OPEC+ crude production rose +1,380 kbpd m/m to average 27,468 kbpd in July, the highest level since before the onset of the Iran War, amidst the ongoing recovery in core OPEC Gulf membership—Saudi Arabia, Iraq, Kuwait—though blunted by a pullback in Kazakh output amidst mounting Ukrainian attacks in the Black Sea.

• The post-MOU surge in oil flow exiting the Strait of Hormuz has rolled over following a resumption of attacks against regional shipping, likely halting the Gulf’s production recovery in its tracks; inbound ballast (i.e., empty) tanker capacity is even weaker than the exit pace is once again the binding constraint on future growth.

• The producer group hiked production quotas by 188 kbpd for September, formally completing the windup of the second 1.66 MMbpd production cut tranche (initially announced April 2023); sources indicate that the producer group will likely pause any further hikes until early 2027 at the earliest, with only the “official” 2 MMbpd full membership production cut announced in October 2022 remaining on the books.

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• North American petroleum liquids production pulled back by -312 kbpd m/m to 31,072 kbpd in May, still up +1,425 kbpd on the year, with monthly declines driven largely by steep seasonal maintenance across Canadian oilsands and US federal Gulf offshore output.

• Continental petroleum product demand slumped -730 kbpd m/m to 24,417 kbpd in May (-198 kbpd y/y), driven largely by weakness in the consumption of key road fuels in the US.

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Every week, I summarize and analyze developments in flat crude prices, calendar spreads, high-frequency inventories, refined products, and positioning data, as well as a taste of the themes I’ve been thinking about or following closely—including our ongoing tracking of shipping flows throughout the Middle East.

Paid subscribers can access the latest weekly update of the detailed 40-page PDF Market Positioning Data Deck at the bottom of this report.

For more free context, check out my contributions to Financial Post (print) and NPR Here and Now Anytime (podcast).

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Summary

Flat Prices fell $8/bbl for Brent to finish around $82/bbl; contracts sank sharply on Monday after Trump’s cancellation of planned strikes on Iran and further on Tuesday following a flurry of headlines promising an imminent Hormuz deal (spoiler: no such deal came).

Timespreads were flat-to-weaker, with indicators of physical market tightness easing alongside flat prices; still, all major benchmarks continue to sport historically-strong prompt backwardation of $1-2/bbl compared to the mini-glut-induced contango seen as recently as a month ago amidst the spike in post-MOU breakout flows.

Inventories data were mixed between a modest draw in ARA Europe and modest builds across the US and Singapore; inventories of all major products across all major importing hubs are running at or below its respective trailing five-year lows, leaving little “wiggle room”.

Refined Products rolled over after their recent heady rally but, even after US gasoline and diesel crack spreads fell by more than $10/bbl, both the key US road fuels continue to sport record-high crack spreads for this time of year.

Market Positioning data confirmed that speculators flipped to modest net sellers of crude futures and options contracts, though the small volume of hot money exodus compared to the sharp pullback in prices yields another bearish positioning print; this selloff, which brought prices nearly $20/bbl lower, was apparently little driven by the rapid liquidation of skittish spec positions and leaves further downside risk if remaining positions are shaken loose.

As Well As why’d Trump back down from strikes?; is Trump about to hand Tehran control of Hormuz?; and the latest tracking of Middle Eastern tanker flow, which is rising through Hormuz amidst a reestablishment of the dark ship-to-ship shuttle trade while at the same time collapsing in the Red Sea following the Houthi blockade of Saudi shipping.

What Happened This Week

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Summary

• China cut crude seaborne oil imports by a staggering 5.4 MMbpd to blunt the lion’s share of the unmitigated loss of oil supply stemming from the closure of the Strait of Hormuz—what I’m calling the “Beijing Swing”.

• This historic exercise of influence over the oil market is nearly equivalent to the total volume of OPEC+ cuts between 2023-24 but was accomplished by a single country in the span of a month or two—far faster than OPEC+’s fractious politics allows.

• This Chinese crude import collapse was accomplished through a combination of refining run cuts and shifts in Chinese strategic crude stocking policy, though the former spurs further downstream mystery and the exact nature of the latter is now fiercely debated given conflicting data.

• The crux of that stockbuilding debate comes down to whether, as implied by official data, the bulk of the inventory swing was driven by a halt to a previously-exuberant pace of builds—the implication being that China doesn’t need to replace these “excess” imports anytime soon—whereas observational (i.e., satellite) data indicates a more modest pace of prewar crude stock building and thus implies a larger role for the release of previously accumulated and unobservable SPR stocks.

• In sum, our interpretation acknowledges the reversal of a strong prewar strategic stock building pace (though not nearly as strong as official data imply) as well as the active drawdown of SPR stocks, together with the historic collapse in Chinese refining runs. In Part 2, we will return to the still-mysterious downstream implications of that refinery contraction.

The Beijing Swing has been the most important structural revelation of the Strait of Hormuz crisis. OPEC may be the long-time swing producer of the global oil industry but the Hormuz crisis has highlighted the role of a key swing buyer: China. While OPEC has, traditionally, been the one to cut production in the face of oversupply and hike production in the face of a supply shock, virtually all of OPEC+’s spare capacity was on the wrong side of the Strait of Hormuz. The Iran War largely neutered OPEC’s capacity to offset the historic supply crisis triggered by the closure of the Strait. Meanwhile, China has demonstrated an unexpectedly colossal and unparalleled capacity to throttle global crude oil demand following the start of the Iran War.

Specifically, China cut seaborne crude oil imports by a staggering 5.4 MMbpd from pre-war levels through June, blunting the lion’s share of the unmitigated loss of oil supply stemming from the closure of the Strait of Hormuz. “On the demand side, China has played an important role in stabilising markets by reducing its crude oil imports by nearly 50% compared with pre-war levels,” wrote the International Energy Agency’s Executive Director in mid-July. This allowed the rest of Asia to recover import levels far more easily in the absence of Chinese competition and helped stave off anticipated domestic shortages.

Yet, there is still considerable uncertainty as to both how and why Beijing pulled off this unprecedented import strike. In particular, the question is whether this was an unexpected but natural reaction of China’s economy or an explicit policy choice—and, if the latter, why? This is the first of a three-part report series that explores the Beijing Swing. This piece will focus on Chinese crude oil balances, a more straightforward market compared to the labyrinth of refined products, natural gas liquids, and petrochemicals, which will be covered in Part 2. In the final part, we’ll assess this question of why, exactly, Beijing decided that saving the global oil market was the best course of action in China’s interests.

Colossal Cut

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Every week, I summarize and analyze developments in flat crude prices, calendar spreads, high-frequency inventories, refined products, and positioning data, as well as a taste of the themes I’ve been thinking about or following closely—including our ongoing tracking of shipping flows throughout the Middle East.

Paid subscribers can access the latest weekly update of the detailed 40-page PDF Market Positioning Data Deck at the bottom of this report.

For more public oil context, check out my comments in the Atlantic’s Great Chinese Oil Mystery and the China Talk podcast (audio) alongside friend of the newsletter Arnab Datta. China is the topic du jour and we’ll be publishing a full exploration of what I’m calling “The Beijing Swing” next week.

Also, read Datta’s Odd Lots newsletter for the best summary that I’ve seen to date about how much farther—both legally and technically—the US Strategic Petroleum Reserve can decline. Spoiler: I’m not too worried about any hard near-term constraints, and expect the Trump administration to announce a second SPR release after the completion of this first programme should the Hormuz disruption continue to drag on.

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Summary

Flat Prices slumped coming out of last weekend, shedding ~$12/bbl from last week’s close through Tuesday before finding a floor and stabilizing around the $90/bbl Brent level, down ~$7/bbl on the week.

Timespreads followed the trajectory of flat prices, weakening through Tuesday before strengthening back into steeper backwardation; the sharpest moves were in Dated Brent-to-Frontline (DFL) spreads, which whipsawed between a high of $8/bbl last week and a low of sub-$2/bbl on Tuesday but ultimately ended the week—and the September prompt contract—at ~$6/bbl.

Inventories data leaned bullish as draws across the US and Singapore offset a crude build in ARA Europe. US stocks drew again following two consecutive large builds, with both crude and gasoline sitting at precariously low levels for the time of year; ARA European diesel stocks are crashing and all major Singaporean products sit at the bottom of trailing seasonal norms.

Refined Products whipsawed amidst further attacks against refineries in both Russia and Saudi Arabia, with both US gasoline and diesel crack spreads hitting Hormuz crisis highs mid-week before pulling back through Friday trading.

Market Positioning data confirmed that speculators were modest net buyers of crude futures and options contracts, a bearish development over a week in which crude prices fell sharply (Tuesday vs Tuesday); with the net speculative position now back to the mid-point between recent highs and lows, positioning no longer presents a clear bullish impulse for crude prices given more balanced go-forward risks.

As Well As Eerie silence after suspected attack on Saudi Arabia’s most important oil facility; Drone strikes expand to Egypt and threaten Suez Canal; Middle East shipping flows remain turbulent (and dark again); and attacks on the CPC Terminal yo-yo Kazakh oil market access.

What Happened This Week

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Every week, I summarize and analyze developments in flat crude prices, calendar spreads, high-frequency inventories, refined products, and positioning data, as well as a taste of the themes I’ve been thinking about or following closely.

Also a reminder that paid subscribers can access the latest weekly update of the detailed 40-page PDF Market Positioning Data Deck at the bottom of this report.

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Summary

Flat Prices rose ~$9/bbl from last week’s close for Brent crude to end Friday trading around $97/bbl, reaching as high as $102/bbl on Thursday amidst escalation between the US and Iran as well as the partial direct entry of the Houthis via threats to Saudi Red Sea shipping.

Timespreads exploded into steeper backwardation, with Brent DFL’s leaping from ~$1/bbl to a peak of $8/bbl before pulling back to around $5/bbl on Friday; Brent is currently seeing the greatest tightness but all major crude grades ratcheted into steeper backwardation as prompt tightness returned alongside re-piqued and broadening Middle Eastern supply risk.

Inventories broadly rose over the past week driven above all by a NGL-heavy build in the US; the previously aggressive pace of stock draws has waned, though overall inventory levels remain depleted across the US, ARA Europe, and Singapore.

Refined Products rolled over after weeks of ramping prices, with US diesel crack spreads giving up $5/bbl vs Brent this week and gasoline margins crashing $10/bbl; however, like with inventories above, while lower on the week, both US gasoline and diesel crack spreads remain at all-time seasonal highs without much immediate structural relief in sight.

Market Positioning data confirmed that speculators were once again net-buyers of crude futures and options contracts, though the positioning swing continues to run weaker than you’d expect given the pace of price gains, a bullish combination confirming likely additional, non-speculative pressure involved in pushing those prices higher.

As Well As in search of a true TACO clearing price, and Yemen’s Houthis opened a second Strait-front in the Bab el-Mandeb.

What Happened This Week

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As part of our ongoing efforts to improve upon and standardize analytical views subscribers will find updated petroleum supply monitoring exhibits for the world’s top-10 global producers.

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Overview

• The global petroleum liquids market remained in steep deficit through May amidst the ongoing Hormuz stoppage; visible inventory declines accelerated, led by global strategic reserves.

• Over the past couple of weeks, global oil markets have rocketed back to strength following the collapse of the US-Iran MOU ceasefire and the resumption of broader attacks against both tankers and military assets in the region. Crude has added nearly $30/bbl from its early-July lows with Brent crude threatening to break back above $100 at the time of writing.

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Every week, I summarize and analyze developments in flat crude prices, calendar spreads, high-frequency inventories, refined products, and positioning data, as well as a taste of the themes I’ve been thinking about or following closely.

Also a reminder that paid subscribers can access the latest weekly update of the detailed 40-page PDF Market Positioning Data Deck at the bottom of this report.

🎙️ On the latest episode of Oil Ground Up podcast (spotify), I was joined by the one and only Jeff Currie for a wide ranging conversation about the theory and reality of crude price discovery running into the shock case study of the Hormuz Crisis. Another special aspect of this conversation with Jeff is that we’re evolving and this is the first time we’ve published the video of our conversation.

For more public oil market context, check out my comments to Bloomberg (print) and Al Jazeera (print), as well as my conversations with the Competent Investor podcast (video) and the Palisades Gold Radio podcast (video).

If you’re already subscribed and/or appreciate the free chart and summary, hitting the LIKE button is one of the best ways to support my ongoing research.

Summary

Flat Prices rose more than $12/bbl—the largest weekly gain since mid-April—as Brent settled around $88/bbl on the back of (1) sharply-elevated Middle Eastern supply risks, (2) the renewed collapse of Hormuz transits, and (3) the prospect of an even longer disruption to the world’s most prolific oil supply line; prices have now fully round-tripped the post-MOU selloff.

Timespreads ripped from minor prompt Brent crude contango last Friday to backwardation of nearly $2.50/bbl on Tuesday, ending the week around $1.80/bbl; other crude benchmarks joined the steepening (to a lesser extent), with WTI and Dubai prompt spreads sporting prompt backwardation of $0.50–0.75/bbl.

Inventories data came in particularly bearish, dominated by the largest headline build in US commercial stocks since last September—though the bulk of the US headline build was NGL inflows; ARA Europe also flipped to builds while Singapore saw draws moderate.

Refined Products felt the mounting supply concern, with diesel crack spreads hitting fresh crisis highs of more than $85/bbl and gasoline cracks rising back to retouch crisis highs above $55/bbl.

Market Positioning data revealed that speculators were massive net buyers but, even with this upswell, positioning risk still remains firmly to the upside between still extremely high short interest and only middling gross length.

As Well As a rundown of this week’s flurry of back-and-forth strikes in the Middle East, the impacts to Hormuz flows, the potential for escalation through the weekend, and a more-serious readying of a Houthi intervention in the Bab el Mandeb Strait.

What Happened This Week

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• Quota participating OPEC+ crude oil production rose +1,183 kbpd m/m to average 26,177 kbpd in June, the highest level since February 2026 immediately preceding the onset of the Iran War.

• However, these production increases are entirely dependent on the continued recovery in crude oil loadings in the Persian Gulf, which has begun to roll over alongside the ramp in US-Iranian tit-for-tat strikes and the renewed collapse of traffic through the Strait of Hormuz.

• The producer group continued to lift its production quota by 188 kbpd for August, leaving only one remaining monthly hike until the second 1.66 MMbpd production cut tranche (initially announced April 2023) is completely unwound; the next question will be how quickly OPEC+ rolls into an unwinding of the final remaining cut—the only official all-member cut—of 2 MMbpd that was initially announced in October 2022, an unwind that could begin as soon as October.

[Full PDF Deck and additional analysis below paywall]

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Every week, I summarize and analyze developments in flat crude prices, calendar spreads, high-frequency inventories, refined products, and positioning data, as well as a taste of the themes I’ve been thinking about or following closely.

Also a reminder that paid subscribers can access the latest weekly update of the detailed 40-page PDF Market Positioning Data Deck at the bottom of this report.

In the latest episode of the Oil Ground Up podcast, I was rejoined by Gregory Brew, Eurasia Group Sr. Analyst for Iran and Energy, to discuss the fragile peace in the Middle East and why the post-MOU order in the Strait of Hormuz remains fundamentally unstable. (Note: this conversation was recorded immediately before the mid-week escalation in strikes, but I believe Greg’s views still hold up well on what’s motivating the key actors and how far they’re likely willing to go.)

For more public oil market context, check out my conversations over the past week with CNN (video), DW News (video), Global News (video), The Commodities Show with Morgan Downey (video), Geopolitics & Empire (video), and Politico (print).

If you’re already subscribed and/or appreciate the free chart and summary, hitting the LIKE button is one of the best ways to support my ongoing research.

Summary

Flat Prices registered the largest weekly gain since mid-May, up $4/bbl on the back of the greatest threats yet to the durability of the US-Iran MOU; both sides exchanged protracted fire as Tehran continued to attempt to force compliance with its control of Hormuz.

Timespreads recovered as Brent moved temporarily back into prompt backwardation from last week’s deepening contango; Brent ended the week stronger but still in very modest prompt contango after rolling over alongside flat prices from Wednesday’s high.

Inventories data registered across-the-board draws in the US, ARA Europe, and Singapore, with the pace of drawdowns re-accelerated stateside while slowing modestly in Singapore and ARA; the fact that the first US commercial crude build since mid-April was (1) swamped by SPR draws and (2) further swamped by refined product draws is an excellent summary of the current state of the oil market.

Refined Products markets remain far tighter than crude, caught between Russia’s diesel ban announcement (bullish) and Beijing loosening fuel export restrictions (bearish cracks, bullish crude); while I would have expected the Russian diesel ban to have been priced in ahead of time, the news was met with an aggressive $10/bbl intraday spike in US diesel margins.

Market Positioning data confirmed that speculators were actually once again net sellers of crude futures and options contracts despite the bounceback in prices between the weekly survey windows; this is a bullish print that indicates prices managed to bounce with no depletion of still-growing spec short covering impulse.

As Well As parsing the most violent week in the Strait of Hormuz since the signing of the MOU, which has understandably further stunted the already-slowing pace of shipping traffic in the region; and what do we know about the lower limit on the US SPR’s fill rate?

What Happened This Week

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As always, we’re posting a recording of the call for oil watchers who weren’t able to make it live.

There’s a ~6:30 minute preview of the call available to all subscribers that covers an update to Hormuz transit traffic, and paid subscribers can watch the full ~70-minute Context Call recording above.

Disclaimer: These materials incorporate third-party data, are provided for informational purposes only, and do not constitute advice or opinion of any kind. Commodity Context does not warrant or guarantee the accuracy or completeness of these materials.

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Our latest contribution to the Dispatch Energy newsletter, Is Big Oil ‘Price Gouging’? is reprinted in full below. You can also listen to the story via the recorded voiceover.

Welcome to Dispatch Energy! Oil flows are lurching toward recovery in the Strait of Hormuz, and crude oil markets have softened from their historic rally. But you may not have even noticed this near-total return of crude prices to prewar levels if you filled up your family’s car over the holiday weekend. For crude oil, market indicators are signaling at least short-term oversupply, given a rush of long-stranded tankers exiting the Strait of Hormuz and still-weak Asian import demand amid China’s ongoing buyers’ strike. Indeed, West Texas Intermediate (WTI) crude prices are back below $70 a barrel, even amid continued instability in the Middle East.

Despite WTI crude prices being roughly the same as last summer, current consumer prices are materially higher. Average U.S. gasoline prices are sitting around $3.80 per gallon—down from more than $4.50 in May but still considerably higher than February’s less than $3.00 and last summer’s average of $3.15. U.S. diesel prices are even more elevated at $4.80 per gallon, down from $5.70 in May but more than $1 higher than the same time last year.

Satellite view of burning storage tanks and heavy smoke following attacks on the Kerch fuel terminal on June 21, 2026. (Photo by Gallo Images/Orbital Horizon/Copernicus Sentinel Data 2026)

Elevated gas and diesel prices have frustrated President Donald Trump, who in a series of Truth Social posts accused “big oil companies” of keeping gas prices high in order to “gouge” American consumers. “DROP YOUR PRICE FOR OUR GREAT AMERICAN PEOPLE,” he wrote in one post, citing $2.50 per gallon as his desired price. Treasury Secretary Scott Bessent followed up these presidential appeals with his own call for companies to lower prices ahead of the country’s 250^th July 4 celebration last week, ominously saying “we’re watching.”

Meanwhile, the American Fuel and Petrochemical Manufacturers published a brief explainer about what these fuel margins mean and don’t mean. It’s clear that the group, representing the U.S. refining and petrochemical industry, is sensitive to the mounting rhetoric from the Trump administration.

The challenge for the Trump administration is that, while certainly related, crude oil and its refined products (gasoline, diesel, jet fuel, etc.) are all distinct commodities. Each has its own balance of supply and demand: The supply of refined products isn’t driven by how much crude oil is pumped out of wells in the southwestern United States’ Permian Basin—or even released after four months stranded in the Persian Gulf. Instead, the supply of refined products depends on how much of that crude oil is processed each day in the world’s more than 500 oil refineries.

Therein lies the problem: Global refinery capacity is currently struggling to keep up with demand for petroleum products. Let’s say that we have 100 units of crude and 100 units of refined product demand but only enough refinery capacity to process 80 units of crude into 80 units of refined product. This is the reality of the oil market today: There is too much crude, which is crushing crude oil prices, and not enough refined products, which is spiking consumer prices.

This difference—between the price of crude and the price of refined product—is known as the “crack spread.” It’s called this because, very simply, a refinery is a giant chemistry set that “cracks” the dense hydrocarbons in crude oil into various lower-density products, like gasoline and jet fuel. Unlike our simplified model above, a refinery can’t transform a single barrel of crude oil into an equivalent volume of gasoline; instead, it produces fractions of a barrel of the entire rainbow of refined products—from the heaviest materials (e.g., asphalt) to middle distillates (e.g., diesel) to the lightest elements (e.g., propane).

The price of a barrel of Brent crude oil currently sits around $75, whereas a barrel of U.S. gasoline is fetching $125 (a $50 per barrel crack spread, compared to a seasonal norm nearer $20) and a barrel of diesel is going for more than $140 (a $65 per barrel crack spread, compared to a seasonal norm nearer $20). The crack spread is the primary driver of refinery profitability, and, for multiple reasons, refined product markets are currently much tighter than crude markets.

Let’s start with the direct impacts of the closure of the Strait of Hormuz. The prewar flow of some 20 million barrels daily through the Strait of Hormuz consisted of roughly 15 million barrels of crude oil and 5 million barrels of refined products. While offsetting pipelines in Saudi Arabia (to the Red Sea) and the United Arab Emirates played a critical role during the Hormuz crisis, these pipelines carried only crude oil, not refined products. The same goes for the release of strategic petroleum reserves: Virtually all of this volume was crude oil rather than diesel or gasoline.

Then there are the broader impacts of the Iran war and, specifically, China’s abrupt cut of nearly half its prewar crude oil imports, dropping roughly 5 million barrels per day from February. On one hand, this was the single largest unexpected factor that helped defuse the worst of the oil market crisis by massively reducing crude oil demand and loosening historically tight seaborne crude markets. On the other hand, it further tightened global refined product markets. Domestic Chinese refining activity cratered and Beijing imposed strict controls on Chinese fuel exports to safeguard domestic supplies through the Hormuz crisis.

These actions also reduced refined fuel exports from the rest of Asia and sent ripple effects through the global industry. As S&P Global explained in an analysis of the supply squeeze, “Octane blending economics have deteriorated as Asian steam crackers curtail operations due to reduced Middle East naphtha exports, tightening global supplies of high-octane blending components, including reformate and aromatics.”

The next reason is Russia’s domestic fuel crisis, the largest since the fall of the Soviet Union, amid relentless Ukrainian drone strikes. Ukraine has targeted Russian energy facilities for years, but there was a renewed surge in attacks through the Iran war as Kyiv attempted to prevent Moscow from profiting off war-related spikes in global pricing. Estimates from Energy Intelligence indicate that nearly one-third of Russia’s total refining capacity, or more than 2 million barrels a day, was offline due to these attacks through June, with domestic refining runs at their lowest point in more than two decades. And the attacks look poised to continue: just this week, Ukrainian drones managed to strike Russia’s largest refinery, located deep in Siberia and roughly 2,700 kilometers from Ukrainian-held territory, knocking it offline.

Without domestic refining capacity, Russian seaborne refined product exports have fallen from nearly 2.5 million barrels a day to less than 1.7 million, according to ship tracking data from Kpler. In addition, Moscow has banned the export of gasoline and jet fuel and is weighing a ban on diesel exports (Note: since publishing, Moscow has confirmed this ban). Russia is one of the world’s largest seaborne suppliers of diesel, so this is another considerable hit to refined product supply.

While Chinese and Russian exports cratered through the Hormuz crisis, U.S. exports surged. Both diesel and jet fuel exports, as well as crude exports, hit record highs in recent months. American refineries maximized jet fuel output to help satiate that particularly starved market. Meanwhile, gasoline’s share of refining yield fell to levels only previously seen during the depths of the COVID pandemic in 2020 and amid the housing market crash of 2008. And we can clearly see this domestic supply tightness in inventory levels. U.S. gasoline stockpiles are at the lowest seasonally adjusted level since 2014, while U.S. diesel stocks have only recently begun to climb back after hitting their lowest seasonally adjusted levels in 30 years.

Finally, there is one additional, U.S.-specific policy factor further stoking domestic refined product prices: the exploding value of renewable identification numbers, aka RINs. Contributing materially to the higher price of U.S. fuel, RIN prices have more than doubled this year due to a sharp increase in the 2026 biofuel blending obligation, especially for biodiesel and renewable diesel. The Environmental Protection Agency sets renewable fuel volume requirements under the Renewable Fuel Standard. Refiners and importers of gasoline or diesel then satisfy those requirements by acquiring and retiring RINs, compliance credits that are generated by blending renewable fuel or buying excess RINs generated elsewhere.

So, it’s a good news, bad news story for the efficacy of the deal that the U.S. and Iran struck to resume shipping in the Strait of Hormuz.

The good news is that shipping traffic through the waterway has recovered more quickly than feared, although the sustainability of the rapid recovery has yet to be determined. This exiting Hormuz surge, combined with the still-weak state of import demand, especially in China, has pushed crude prices back to prewar levels.

The bad news is that Trump clearly expected pump prices to follow crude oil’s rapid pullback just in time for the midterm elections, and so far they have not. The lagged effects of the Hormuz crisis, Ukraine’s success in crippling Russia’s refining sector, and his own administration’s biofuel policies have worked together to keep pump prices stubbornly high.

Disclaimer: These materials incorporate third-party data, are provided for informational purposes only, and do not constitute advice or opinion of any kind. Commodity Context does not warrant or guarantee the accuracy or completeness of these materials.