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The Energy Report

Phil Flynn
http://www.pricegroup.com/
pflynn@pricegroup.com


18 inches of Daylight. The Energy Report 08/6/2026

Chicago Bears legend Gale Sayer once said ‘Give me 18 inches of Daylight. That’s all I need”. Apparently, the oil and diesel crack spreads share same that same philosophy as they went into deep retreat after Iran and Oman said they’ve reached an agreement on a proposed shipping route through the Strait of Hormuz. Here we go again! Yet the reports sent oil and cracks lower like the running style of Sayers going downfield not like a normal market but moving on pure instinct and you get the headline and one cut and it’s gone. The market wants to believe that any opening no matter how small can remove years’ worth of risk premium and keep the globe supplied with oil and products.

Take the Diesel Crack Spread the market that is the tightest and at most risk had been roaring above $93 a barrel got cut down hard, plunging toward $78 before clawing some ground back, while Brent settled near $79 and WTI hovered around $75 after shedding more than 11% in the first three sessions of the week. Early Thursday trade saw prices tick higher on WTI.

Obviously, there is hope that any opening of the Strait of Hormuz, no matter how small, will alleviate the diesel tightness, especially after an Energy Information Administration report that wasn’t as dire on the supply side as many had feared and actually came in better than expected. EIA said that U.S. commercial crude oil inventories, excluding the Strategic Petroleum Reserve, rose by 2.5 million barrels to 407.0 million barrels, leaving them about 6% below the five-year average for this time of year. Total motor gasoline inventories fell 1.6 million barrels and now sit 7% under the five-year average, with declines in both finished gasoline and blending components. Distillate fuel inventories dropped 3.5 million barrels but remain roughly 12% below the five-year average—still tight, yet not the deeper draw some traders had braced for.

Just like Sayers exploding through that narrow lane of daylight and leaving defenders grasping at air, the cracks and crude didn’t ease lower in orderly fashion—they bolted the second the Iran-Oman shipping-route agreement news hit the tape. One clean headline, one decisive cut, and the premium evaporated as pure instinct took over the market.

Despite the fact it seems like the United States allegedly was left out of this process President Trump still says that he believes that substantial progress has been made that an announcement could come within the next few days.

Treasury Secretary Bessent was more optimistic, saying a deal to reopen the strait could be reached as soon as today or tomorrow. Rubio was more cautious: the Oman talks have advanced, but no agreement is final. The administration’s position is clear—no Iranian tolls, no requirement for ships to seek Tehran’s permission to transit, and no arrangement that gives Iran control. Trump put it plainly: “I’m not going to let them charge.” Iran offers a different account. It says the talks are solely with Oman, the coordinates for a new route are largely settled, and a joint statement is nearing completion—provided “certain third parties” do not interfere. Iran’s deputy foreign minister says the route would run mostly through Iranian waters and remain temporary, lasting two to four months and possibly longer if conditions hold. Tehran also links a broader reopening to the U.S. lifting its naval blockade of Iranian ports and honoring earlier commitments. In short, Iran is proposing a temporary arrangement of two to four months. Can it be trusted? Markets took the headlines seriously: oil and the diesel crack spread plunged yesterday and remain soft this morning. Caution is warranted. A June memorandum of understanding was also supposed to reopen the strait, but it collapsed over disputed terms, attacks, and mutual accusations of noncompliance.

Iran and the U.S. still disagree over whether they are negotiating directly, who would control the shipping lanes, and whether any transit fee is acceptable. Those are significant unresolved issues. Still a short-term technical agreement on a temporary route is possible, but a durable reopening that restores prewar freedom of navigation is far less certain. The actual statement—if released—should provide more clarity. Until then, the market is pricing in hope while retaining a substantial risk premium.

That same instinct for finding open space is now driving a bigger strategic shift. Israel and several Gulf Arab states have been holding talks on alternative energy corridors that would let Gulf oil and gas reach global markets while largely bypassing both the Strait of Hormuz and the Bab el-Mandeb. Israeli Energy and Infrastructure Minister Eli Cohen has described recent meetings aimed at routing Gulf crude and products overland or via short sea links into Israel’s existing Eilat-Ashkelon (Europe-Asia) pipeline system, then out to the Mediterranean for Europe-bound tankers. Near-term ideas include offloading at Saudi Arabia’s Red Sea port of Yanbu and moving volumes to Eilat, while longer-term concepts involve new pipelines linking Gulf producers through Jordan (Aqaba) into Israel and onward to the Med. The goal is straightforward: reduce the ability of any single chokepoint—or the actors who can threaten it—to hold Gulf energy exports hostage.

Cohen has called the Israeli Mediterranean outlet the preferred long-term option because it can be protected and would create real competition with other routes. Parallel efforts already under way include Saudi expansions of the East-West (Petroline) system to Yanbu and UAE work to expand the Habshan-Fujairah pipeline and Fujairah export capacity, both of which already sit outside Hormuz. These moves sit against the backdrop of broader regional connectivity talks (including elements of the India-Middle East-Europe Corridor) and U.S. interest in diluting Iran’s leverage over the world’s most important energy waterway. The market’s violent reaction to even a provisional Hormuz shipping-route understanding shows how sensitive prices remain to any credible path around the risk—whether that path is diplomatic or physical infrastructure.

On the producer side, Saudi Aramco just delivered strong second-quarter results: adjusted net income of about $33.4 billion for the quarter and $67.2 billion for the first half. Higher realized prices more than offset lower volumes caused by the Hormuz disruption. The company continues to use the East-West Pipeline and is keeping major projects (Zuluf, Fadhili, Jafurah) on track. The board declared a $21.9 billion base dividend for the quarter. Even with export constraints, the Kingdom’s finances got a solid boost.

Natural gas is a different story. The US market is well supplied. Record or near-record production, comfortable storage, and milder forecasts have kept a lid on prices. Front-month futures have been trading in the high $2s to low $3s range recently. The EIA storage report due later this morning (for the week ending July 31) is expected to show another solid injection around 30 bcf. Storage remains above the five-year average, which continues to cap upside even when power burn rises with heat.

Still Fox Weather reports that the latest European tropical forecast model shows an increase in activity in the Atlantic as we move into late hurricane season despite a strengthening El Niño predicted to reach super status. Maybe the strongest El Nino in history or at least ever recorded. Fox Weather notes that because of that the Atlantic hurricane season is off to a quiet start, with only one named storm in mid-June, and no significant tropical activity expected heading into mid-July. So far we’ve only seen two named storms, Arthur in mid-June and Bertha in late July, and neither reached hurricane strength. No significant tropical development is expected in the near term. That reduces the immediate risk of Gulf of Mexico production shut-ins for both oil and natural gas.

So download the Fox Weather ap and stay tuned to the Fox Business Network! Also make sure you call me at 888-2645665 or email me at pflynn@pricegoup.com



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