Week in Review – Oil Prices End the Week Higher as Supply Risks Return

Oil prices are ending the week higher as renewed fighting between the United States and Iran raises fresh concerns about energy shipments through the Strait of Hormuz. West Texas Intermediate crude was trading near $72 per barrel Friday morning, putting it on track to gain approximately $3.50 for the week. Brent crude was trading near $76 per barrel, with both benchmarks heading toward weekly increases of roughly 5% to 6%.

The latest increase followed several days of renewed military activity between the United States and Iran. U.S. forces struck targets in Iran, while Iranian forces responded with attacks on U.S. military infrastructure across the Gulf region. Although diplomatic discussions are continuing, the escalation has highlighted how fragile the current ceasefire remains.

The most immediate concern for energy markets remains the Strait of Hormuz. Tanker traffic through the waterway has slowed to a near standstill following the latest attacks. Some vessels are reportedly turning off their transponders to reduce the risk of being identified or targeted while passing through the area.

Before the latest escalation, traffic had recovered to an average of about 40 ships per day. That was the highest level since the conflict began, but still well below the pre-war average of approximately 125 to 140 daily sailings.

The limited traffic is keeping a risk premium in oil prices because markets still do not know when normal shipping activity will resume. Liquefied natural gas tankers have recently passed through the strait, but overall commercial traffic remains restricted.

Diplomatic developments are helping prevent a larger price increase. The United States and Iran have indicated that they remain committed to finding a negotiated solution, and Qatari officials have reportedly been working with both countries to reduce tensions and create conditions for broader discussions.

Markets have also taken some reassurance from the fact that recent U.S. strikes have avoided Iranian energy infrastructure. Direct attacks on oil fields, export terminals or refineries could create a much more significant and immediate disruption to global supplies.

At the same time, additional crude oil is becoming available from other sources. The United Arab Emirates increased production to an all-time high of approximately 4.1 million barrels per day in June. Iran has also released tankers carrying about 11 million barrels of crude in response to the threat of a U.S. port blockade, although it remains uncertain where those barrels will be sold following the removal of U.S. sanctions waivers.

Global oil production also improved during June as shipping through the Strait of Hormuz partially recovered. According to the International Energy Agency, global supply increased by 4.1 million barrels per day from the previous month. Even with that improvement, production remained 9.4 million barrels per day below pre-war levels.

The IEA has warned that another significant escalation could change the longer-term market outlook. The agency currently expects the oil market to move from an estimated deficit of 860,000 barrels per day this year to a surplus of approximately 4.62 million barrels per day in 2027. That projection depends heavily on a lasting peace agreement, improved tanker traffic and the successful restart of disrupted production and refining operations.

Russia Adds More Pressure to Diesel Markets

Ukrainian attacks on Russian energy infrastructure have reduced the country's ability to produce and export refined fuels. Russia responded by banning diesel exports while maintaining restrictions on gasoline and jet fuel shipments.

Russian diesel and gasoil exports had already fallen to a record low of about 400,000 barrels per day and reportedly dropped to less than half that level in July. Buyers in Brazil, Turkey, Africa and other markets may now seek replacement supplies from the United States, India and the Middle East, increasing competition for available diesel.

The IEA also lowered its Russian production outlook, while refined-product exports declined by 230,000 barrels per day in June. Although crude exports have increased, additional crude does not immediately ease shortages of gasoline and diesel.

Inventories Offer a Limited Cushion

Low inventories are leaving fuel markets more vulnerable to additional disruptions. U.S. gasoline stocks were at their lowest early-July level since 2021, while refined-product inventories across developed economies remained below their 2015-2019 average.

Demand is also expected to increase during the summer, with the IEA forecasting global oil consumption to rise by approximately 8 million barrels per day from May's low point.

At the same time, governments are preparing to rebuild emergency reserves depleted during the supply crisis. U.S. strategic inventories fell to 319.5 million barrels in early July, their lowest level since April 1983. Kpler estimates reserve rebuilding could add 506,000 barrels per day of crude demand in late 2026 and as much as 664,000 barrels per day by the third quarter of 2027, helping support oil prices even as commercial supplies recover.

Prices in Review

Crude prices moved higher through most of the week before easing on Friday. Prices opened at $68.43 on Monday and edged up to $68.58 on Tuesday, then climbed to $72.38 on Wednesday. The rally continued to $74.95 on Thursday, the highest level of the week, before crude pulled back to $71.86 on Friday. Overall, crude prices increased by $3.43 per barrel, representing an approximate 5.0% gain during the week.

Diesel prices opened at $3.1793 on Monday and climbed to $3.3044 on Tuesday, followed by additional gains to $3.3695 on Wednesday. Then, prices surged to $3.7131 on Thursday, before easing to $3.5606 on Friday. Overall, diesel prices increased by $0.3813 per gallon, representing an approximate 12.0% gain during the week.

Gasoline prices climbed through Thursday before giving back some of those gains at the end of the week. On Monday, prices opened at $2.9190 and rose to $3.0020 on Tuesday, followed by a smaller increase to $3.0175 on Wednesday. The market reached a weekly high of $3.1233 on Thursday before easing to $3.0368 on Friday. Overall, gasoline prices increased by $0.1178 per gallon, representing an approximate 4.0% gain for the week.