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The Energy Report

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


Peace Breakthrough Meets Strait Squeeze. The Energy Report 07/31/2026

Oil markets started the session lower but are holding a tight range this morning after President Trump dropped a potential game-changer overnight. On Truth Social he announced that the Board of Peace reached a historic agreement to completely disarm Hamas and all other armed groups in Gaza. He called it “a monumental step towards peace and security.” The market gave him the benefit of the doubt even though plenty of questions remain about how this actually plays out on the ground.

Trump said mediators from Egypt, Qatar, and Turkey made the breakthrough possible and that the threat that emerged from Gaza on October 7th will not be allowed to rebuild. Overnight, Hamas said it will hand over its weapons for storage under the responsibility of the Palestinian National Committee — but only if Israel endorses the agreement. Part of the deal, according to Hamas, requires Israel to withdraw its forces from Gaza. That’s a tall order, and Israel has been skeptical. Still, the mere fact that we’re talking about complete disarmament instead of another endless cycle is something the oil market is willing to price, at least for now.

Even though the United States did not strike Iran overnight, the Strait of Hormuz remains a concern. Reports this morning say the Iranian Revolutionary Guard stopped two tankers from passing through the Strait and four other tankers decided to change course — six vessels affected in total. This caused oil to reverse higher.

At the same time, Kuwait’s army reports it destroyed drones that entered its airspace and said Iranian attacks caused significant damage to some vital military sites.

Meanwhile, the Caspian Pipeline Consortium has discussed an indefinite halt of oil and tanker operations until it gets safety guarantees from other states after repeated drone strikes on vessels at Novorossiysk. And Saudi Arabia conducted strikes against targets in Iraqi territory, making clear the action was not directed against the Iraqi people but against Houthi-linked groups that have been attacking Saudi infrastructure from there.

This comes as vessel traffic through the Strait hit crisis-era lows in the week of July 20-26 — just 39 total transits, down from 82 the week before. Non-Iranian-linked traffic fell 27% week-on-week to 22 transits, and inbound Gulf traffic is running more than 90% below pre-conflict levels. About 70% of the transits that are happening are now “dark” (transponders off), so actual flow is almost certainly higher than the tracked numbers suggest.

Pre-war throughput was around 20 million barrels a day. Current Middle East Gulf flows are still estimated around 15 million barrels a day — and that’s the point. The U.S. reported over 8 million barrels moved on one recent day under military escort. Saudi Arabia is already routing roughly 3.75 million barrels a day through its Red Sea Yanbu terminal, completely bypassing the Strait. Dark shipping, shadow-fleet tankers, Red Sea reroutes, and naval escorts are no longer emergency measures — they are becoming the new operating system.

Oil is still moving. Not at the old clean, open-Hormuz pace, but at a resilient, adaptive 75% of normal through workarounds that are proving more effective every week.

The fighting continues, the CPC is offline again, and drones are flying, yet crude is holding its recent range in the low-to-mid $80s. The market is telling us the physical workarounds are real and working.

And if the Hamas disarmament deal actually sticks, Iran just lost another key regional ally. That’s a strategic hit on top of the logistical one.

For now, oil is staying in the range — and the system is adapting faster than the headlines.

“We are also seeing diesel crack spreads calm down, as well as gasoline cracks, and that raises hope that the gas price spike at the pump might be short-lived. AAA has the national average for gas and diesel at $4.091 for regular unleaded and $5.329 for diesel — gas is down slightly from yesterday’s $4.099, though diesel ticked up from $5.321.”For context: both are up notably from a month ago ($3.86 gas / $4.859 diesel) and year ago ($3.137 gas / $3.735 diesel), reflecting the Hormuz-driven crude spike, but the day-over-day flattening in crack spreads is the first sign that pump prices could be topping out if crude stays contained.

Of course, this comes against a backdrop of an economy that is gaining momentum. Q2 GDP printed 1.5% — missed the 2.1% consensus, but don’t miss the real story. That’s a clear acceleration from the anemic 0.5% we crawled through last quarter. Growth came from the right places: consumers still spending, businesses still investing, and exports holding their own. Government spending pulled back — and in this environment, that’s a real positive for the economy as growth is real not just based on inflationary government money printing. Th economy is growing up and can live on its own with out the fed and the government creating inflation In fact core PCE, the Fed’s preferred inflation gauge, cooled to 3.4% in Q2 from 4.4% in Q1. Real disinflation progress.

As I said before we’re seeing the same calm in the energy complex — diesel and gasoline crack spreads have been settling this week, suggesting the worst of the pump-price pain may already be behind us.

Labor market isn’t cracking either. Initial claims came in at 197,000 (better than the 200k expected) and continuing claims dropped to 1.782 million. People aren’t losing jobs, they’re still spending, and prices are cooling. That’s about as close to a soft-landing recipe as you’re going to get on paper.

Yes, the GDP price index spiked to 6.3% and gave the stagflation crowd their talking points. Yet one noisy quarter of deflator math doesn’t erase three straight quarters of core PCE deceleration.

Forget the usual firehose of forward guidance, dot plots, and a dozen officials contradicting each other on cable. Chair Kevin Warsh has gone full silent-but-deadly. He ripped up the forward-guidance playbook, ditched his own rate forecast, and is reminding us of Alan Greenspan’s greatest hit: say something that sounds important and means absolutely nothing.

He’s even set up task forces to figure out how to talk less. Somewhere a committee of PhDs is being paid handsomely to decide the optimal number of words the Fed should use in public — and I’d bet the answer is trending toward “none.” Silence is golden my eyes still see.

This is frustrating to some bond traders and wall street traders who’ve spent two decades trying to learn the ancient language of Fed speak. Now they have to live in a world of no hand-holding, no dot-plot comfort blanket — just vibes and a press conference where Warsh may or may not blink twice for “rate cut.” Sure it may be unsettling at first… but maybe, just maybe, healthier. Let the economy flow and take off the Fed training wheels.

Of course, some Fed officials are still not happy with that style. In fact, this morning’s breaking headlines had Cleveland Fed President Beth Hammack saying she’s not confident that inflation will ease absent action from the Federal Reserve. In other words, Hammack is making it clear she believes the only way to fight this inflation is with the Fed itself as the primary weapon. Maybe she is just not ready to let go.

Do friends let friends try to pick bottoms in natural gas? Wow, it is tempting.

After yesterday’s bullish EIA storage report and a market that is deeply oversold, it looks like the perfect setup. Yet with production at record levels and LNG exports slowed by maintenance, it is still scary even at these low levels. If you’re brave… you might want to venture or not.

The EIA reported a 28 Bcf injection for the week ended July 24. That was tighter than the ~35 Bcf consensus and pushed working gas inventories to 3,084 Bcf. Stocks sit roughly 6% above the five-year average but about 1% below year-ago levels. A smaller-than-expected build in the heart of the injection season is exactly the kind of number that can spark a short-covering bounce when prices are already beaten down.

Front-month natural gas has been trading near multi-month lows around the mid-$2.70s after a sharp July selloff. Technically the market is oversold. Speculators have been heavily short. That combination—bullish inventory surprise + stretched positioning—is why the bottom-picking talk is getting louder.

Here’s the other side of the trade, and it’s not small. U.S. Lower 48 production has been running at record or near-record levels, averaging about 110.6 Bcf/d so far in July. That is matching the previous monthly high set late last year. At the same time, feedgas to the big LNG export terminals has eased to around 17.2 Bcf/d amid maintenance (Freeport and others). That is well below the earlier 2026 peaks near 18.8 Bcf/d. Strong supply and softer export pull keep a lid on any sustained rally, no matter how oversold the chart looks.

So yes, the setup is tempting. A bounce from these levels would not shock anyone. But the fundamental headwinds—record production and temporarily softer LNG demand—mean any long needs to be respectful of risk. This is not a set-it-and-forget-it bottom call. . Maybe the Fox Weather Outlook might help us make that decision.

Residual summer heat is still supporting power-burn demand across key regions, which helps limit how large the weekly injections can get. Keep an eye on the temperature trends as we move into early August—any extension of above-normal heat would be constructive for the bulls, while a cooler pattern would reinforce the bearish supply story. Download the Fox Weather app so you can track the forecasts that actually move this market in real time. Also stay tuned to the Fox Business Network! Invested in you! Get your account open today as summer is waning on this last day of July. Just call 888-264-5665 or email me at Pflynn@pricegroup.com.



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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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Contact Phil at 1-888-264-5665 or pflynn@pricegroup.com.