Oil Prices Rebound as Geopolitical Tensions Resurface in the Strait of Hormuz

In a market where physical oil continues to weaken, drone attacks in the Strait of Hormuz have pushed oil prices higher once again as geopolitical risks resurface. ICE Brent touched $74 per barrel again, reflecting the geopolitical risk premium that the market had become familiar with.

Saudi Arabia Implements Sharp Price Cuts to Regain Asian Market Share

Saudi Arabia's national oil company, Saudi Aramco (TADAWUL:2222), has cut its official selling prices (OSP) for Asian-bound cargoes for August by as much as $11 per barrel, double the expected reduction.

For the first time since 2020, Saudi Arabian oil in Asia is trading at a discount to regional benchmarks, with Aramco's Arab Light selling at $1.50 per barrel below Oman/Dubai.

China's demand for Saudi oil has yet to recover after its June allocation fell to just 14 million barrels (470,000 bpd), a record low, while flows to the US have completely dried up.

Facing a sharp decline in European demand, Saudi Aramco has reduced its formula by up to $15 per barrel, the largest monthly OSP cut for both Asia and Europe since at least 2000.

Although Aramco has restarted loading at Ras Tanura port in the Gulf, flows remain relatively low at around 1 million bpd in July so far, significantly down from the pre-war 6 million bpd.

Key Developments in the Oil Sector

• British oil giant BP (NYSE:BP) has agreed to sell its non-operating interest in 10 licenses related to the Bay du Nord offshore project in Canada to Norwegian state oil company Equinor (NYSE:EQNR), without disclosing the terms of the deal.
• American oil giant Chevron (NYSE:CVX) has signed a memorandum of understanding with Iraq's Basrah Oil Co. to study two alternative crude oil export pipelines, the Basrah-Ceyhan and Basrah-Baniyas routes, allowing Iraq's production to bypass the Strait of Hormuz.
• Italian national oil company ENI (BIT:ENI) is acquiring a 25% stake in Chile's lithium project from US startup EnergyX for $225 million, marking another major oil company's entry into the lithium space.
• London-based energy giant Shell (LON:SHEL) has signed an agreement to sell 50% of its interest in the Na Kika oil platform in the US Gulf of Mexico to a consortium of offshore specialists, Talos Energy (NYSE:TALO) and Ridgewood Energy, for $1.7 billion.

OPEC Core Members Approve Production Increase

Seven core OPEC members have decided to increase crude oil production targets for August 2026 by 188,000 bpd, leaving just 188,000 bpd of voluntary cuts, which are expected to be approved at the next meeting scheduled for August 2.

US Strategic Petroleum Reserves Decline to 43-Year Low

According to data from the US Energy Department, crude oil inventories in the US Strategic Petroleum Reserve fell by another 6.2 million barrels in the week ending July 3, reaching 319.5 million barrels, the lowest level since April 1983.

South Korea Prosecutes Oil Refiners for Price Collusion

The South Korean prosecution office has formally indicted four oil refiners - HD Hyundai Oilbank, SK Energy, S-Oil, and GS Caltex - for fuel price collusion, alleging that their anti-competitive practices caused damages of up to $17 billion.

IEA Warns of Global Natural Gas Demand Decline

The International Energy Agency (IEA) forecasts global natural gas consumption will decline by 0.5% in 2026, equivalent to a reduction of 20 billion cubic meters compared to the previous year, marking the third decade decline after 2020 and 2022, when high LNG prices led to demand destruction.

Germany Strengthens Gas Reserves

The German government has decided to create a state-controlled emergency gas reserve, planning to increase gas storage by nearly 10% compared to the country's current capacity, requiring $1.7 billion with expectations for injection by 2027-2028.

Iran Utilizes Floating Storage to Bypass US Sanctions

Trump administration's two-month waivers on Iranian crude and product exports have allowed Tehran to liquidate half of its existing floating storage, with idle oil in Southeast Asia reduced to just 24 million barrels, down 50% from a month earlier.

Qatar LNG Ship Faces Explosion Risk

Al Rekayyat, an LNG carrier owned by QatarEnergy and suspected to have been targeted by an Iranian drone on June 7 about 7 nautical miles off the coast of Oman, is reportedly at risk of explosion due to a fire in the engine room after the crew was evacuated.

CATL's Resumption Bears Negative News for Lithium Prices

China's leading battery manufacturer CATL (SHE:300750) has been granted a safety production permit for the crucial Jianxiawo mine after an 11-month suspension, indicating Beijing's willingness to lower lithium prices and limit imports.

Riyadh Considers East-West Pipeline Expansion

Saudi Arabia is considering expanding the capacity of the 7 million bpd East-West pipeline to accommodate additional domestic crude oil production from the Persian Gulf and potentially flows from neighboring countries, minimizing ongoing Hormuz risks.

Cuba Collapses Under Weight of Power Outages

Cuban authorities have struggled to restore electricity across the Caribbean nation after a nationwide blackout on Monday - the third in 2026 so far - leaving nearly 10 million people in darkness amid strict US sanctions on imports.

Iraq Accelerates Production in the South

Iraq has brought three key upstream assets in the southern Basrah region - West Qurna 1, Rumaila, and Artawi - to full capacity, seeking to push production closer to the 4 million bpd threshold as quickly as possible to boost budget revenues.

Israel Promotes Eastern Mediterranean Gas Development

Israel has launched its fifth licensing round to promote offshore gas production in the Eastern Mediterranean, spurred by the Israel-Lebanon maritime demarcation agreement, with Tel Aviv targeting an additional 400 billion cubic meters of undiscovered gas.

Russia's Largest Refinery Shut Down After Attack

The Omsk 400,000 bpd refinery, Russia's largest by nominal capacity, has been shut down following a Ukrainian drone attack earlier this week, with media reports indicating a 180,000 bpd distillation unit was damaged.

Software Issues Threaten Congo's Cobalt Exports

Congo's major cobalt exporters face the risk of losing half of their first-half 2026 quota after the country's customs platform blocked export declaration registration since July 1, affecting approximately 20,000 tons.

By Tom Kool for Oilprice.com