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The Energy Report

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


Back From The Brink… Again. The Energy Report 08/3/2026

Oil just pulled another classic Trump war whiplash, keeping Iran and the oil traders off kilter and giving Iran a chance to have a post war chance to still have some sort of economy. After a July that saw crude surge more than 20% on renewed U.S.-Iran fighting and tanker attacks that kept shippers nervous about the Strait of Hormuz, prices are tumbling hard this morning. WTI is down roughly $4–5 (around 5–6%) into the high $70s / low $80s — as September WTI futures around $80–$81 — while Brent has shed a similar amount and is trading in the low-to-mid $80s (one print had it sliding over 6% toward $82).

It began late Friday, when Trump warned that another strike on Iran could be coming. Oil prices jumped as traders braced for a fresh escalation. Then the story turned: at the urging of Tehran and other Middle Eastern governments, Trump said he would hold off. Attention shifted almost immediately from the threat of conflict to negotiations over reopening the Strait of Hormuz and addressing Iran’s nuclear program. As quickly as fear had entered the market, it began to fade, and traders were left watching the headlines for the next twist.

Across the Gulf, Iran began telling its side of the story. Foreign Ministry spokesman Esmaeil Baghaei said Iranian and Omani officials were working toward an understanding that could create a safe passage through the Strait of Hormuz. Foreign Minister Abbas Araghchi added a note of urgency, saying the talks had entered their final stages. The goal was a temporary route that would keep ships moving without sacrificing the rights of either coastal state. But Baghaei made clear that a safe route would be only the first step—not enough by itself to reopen the Strait. Since March, he said, U.S. and Israeli actions and restrictions on paid transit have kept the waterway unsettled. And of course if you try to avoid the toll Iran will decide to blow you out of the water if they can.

While diplomats talked about creating a “safe passage,” the world’s energy consumers were left waiting on negotiations over a waterway that carries a critical share of global oil trade. In effect, Tehran was trying to turn the Strait of Hormuz into a bargaining chip—asserting control over an international shipping route and leaving importers, refiners and motorists exposed to every threat, delay and demand.

But beyond the strait, producers were preparing an answer. OPEC+ approved a 188,000-barrel-a-day increase for September, even if conflict, damaged infrastructure and export constraints could keep some members from meeting their quotas. U.S. production, meanwhile, remained near record territory, with the EIA’s June outlook placing 2026 crude output at about 13.72 million barrels a day. More supply was also rising outside OPEC and American shale: Brazil’s offshore fields, Guyana’s expanding projects and Argentina’s Vaca Muerta were expected to provide roughly half of the projected 800,000-barrel-a-day increase in global crude production this year. Diplomats may be trying to command the chokepoint, but the rest of the oil-producing world is working to make that leverage less powerful.

For now, the better story is how far the market has stepped back from the nightmare many feared. After warnings of triple-digit crude and even much more extreme spikes, WTI has retreated toward $80 and Brent into the low-to-mid $80s. That is hardly cheap, but it is a long way from the disaster scenarios that dominated the conversation only weeks ago. Diplomacy has not solved everything, and Hormuz traffic remains constrained, yet the market is beginning to see a route away from the brink. Refiners and consumers are finally catching a break, geopolitical bulls are surrendering some of the risk premium, and every tanker that moves safely through the strait strengthens the case for calmer prices ahead. Still there are some warning about caution is at the pump.

Exxon Mobil, Chevron and other refiners warn that gasoline and diesel could stay higher for longer because the world has very little spare refining capacity. U.S. plants have been running near their limits, global outages have removed additional capacity, and maintenance cannot be postponed forever. So crude oil may be far below the levels many feared while motorists wait longer to feel the full relief. Even so, the direction is encouraging: the worst fears are fading, supply is responding, and diplomacy now has a chance to turn a sharp price retreat into lasting stability.

And for the folks in California frustrated with oil prices… Secretary of Energy Chris Wright directed Sable Offshore to restore operations of the Santa Ynez Unit and Santa Ynez Pipeline System. This action, under Defense Production Act authorities, addresses supply disruption risks caused by California policies that left the region and U.S. military forces dependent on foreign oil. Sable’s facility can produce roughly 50,000 barrels per day — a meaningful boost to California’s in-state production that can replace nearly 1.5 million barrels of foreign crude each month. California once supplied nearly 40% of U.S. oil; now more than 60% of what it refines comes from overseas, with a chunk traveling through Hormuz. Restoring this system prioritizes American barrels for domestic refineries and West Coast military readiness while creating jobs. That’s the kind of common-sense move that puts energy security first.

Overnight, drivers finally caught a small break. After weeks of watching prices climb, the national averages quietly stopped rising. Regular gasoline edged down a fraction of a penny to $4.095, mid-grade eased to $4.581, and premium settled at $4.967. Diesel held steady at $5.364, while E85 slipped to $3.142.

It was not a dramatic plunge, but it marked a welcome turn in the story. The relentless march higher had paused, giving motorists a chance to catch their breath. Prices remain above both last month’s levels and those of a year ago, yet the overnight calm offered the first real hint that the pressure may be easing. For now, the road ahead looks a little brighter: the worst of the climb appears to be on hold, and drivers have finally been given a modest measure of relief even as the big boys fear we can stay high for longer.

volatility is not finished. Markets that can swing $4 or $5 in a session on a single headline will keep punishing the unprepared. For producers, refiners, and traders, options and calendar or crack spreads remain one of the cleanest ways to ride out the swings without having to predict the next tweet or tanker incident. On the upside surges that still come, more small producers can step in with collars or simple puts to lock in better prices and protect cash flow—exactly the kind of disciplined hedging that turns chaos into manageable risk. Crude has retreated, diplomacy has a narrow opening, and supply is answering the call. The road ahead still has potholes, but for the first time in weeks the lights look a little brighter and the worst of the nightmare has begun to fade.

Natural gas is still trying for a turn. Last week’s EIA storage report finally delivered a bullish print for the first time in a while — a 28 Bcf injection for the week ending July 24 that came in well below expectations (consensus was closer to 35 Bcf) and sharply below the year-ago build of 44 Bcf. Inventories now sit at 3,084 Bcf, 32 Bcf (about 1%) below last year but still 185 Bcf (6.4%) above the five-year average. The smaller build, driven in part by draws in the South Central salt and Pacific regions amid stronger power burn, was the kind of number the market has been waiting for.

Prices remain soft (front-month futures hovering in the mid-to-high $2.70s), but the storage trajectory is starting to tighten at the margin. Production is still robust and LNG feedgas remains elevated, yet the combination of a tighter-than-expected injection and the seasonal peak in cooling demand has given the bulls a foothold.

Weather will be the key and the Fox Weather app is must have. Whether this turn can be sustained hinges on whether we get a real hot blast that drives power-sector demand higher and keeps storage builds restrained. Watch the Fox Weather outlook closely over the next several days for confirmation of extended heat across the major population centers (especially the East, Midwest, and South). If the models hold and we see sustained above-normal temperatures, demand should firm and give natural gas the follow-through it needs. If the heat fades or stays regional, the market will likely struggle to build on last week’s constructive storage number. Stay tuned to Fox Weather for the latest temperature outlooks and to Fox Business — they’re invested in you.

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Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.

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Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Alaron Trading Corp. its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

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