Brent crude futures hovered near recent highs of $90 per barrel before easing to approximately $87 early Thursday, as market participants awaited signs of progress on reopening the Strait of Hormuz—a chokepoint that normally carries roughly one-fifth of global oil consumption. Stalled U.S.-Iran negotiations and increasingly tight global fuel supplies continued to underpin prices, drawing warnings from prominent energy analysts about a potential supply shock.

U.S.-Iran talks remained deadlocked heading into the weekend. The Trump administration has maintained its blockade of Iranian ports, while Tehran continues to demand compensation for war-related damages. Pakistan, which has acted as a mediator in the discussions, confirmed that the broader peace negotiations have stalled.

In a post on Truth Social late Wednesday, President Trump stated that the United States has "total control" over the Strait of Hormuz and added, "I think we will keep it." The remarks reinforced the administration's reliance on economic pressure while the broader U.S. military campaign remains on hold.

Brent crude was on track for a weekly gain of nearly 5%, as the outlook for a near-term resolution to the U.S.-Iran conflict remained uncertain and mutual Ukrainian and Russian strikes on energy infrastructure further tightened oil and, more critically, diesel markets. Diesel is the primary fuel for global freight, agriculture, and industrial production, making a sustained squeeze a direct input-cost pressure across the broader economy. A prior analysis titled "Winter Is Coming" detailed how Europe faces a combined diesel and natural gas supply crunch.

Samantha Dart, co-head of global commodities research at Goldman Sachs, said in a Bloomberg TV interview that the global diesel supply squeeze is "what keeps her up at night." Saxo Markets strategist Charu Chanana noted that volatility would persist until the Strait of Hormuz reopens and the production outlook becomes clearer.

The International Energy Agency released a report on Wednesday forecasting a 1.8 million-barrel-per-day deficit for the current quarter—more than double its previous estimate. The agency also cautioned that elevated prices are beginning to suppress demand and projected the widest annual supply shortfall in five years.

Partially offsetting the bullish pressure, U.S. inventory data showed crude stockpiles surged by 17.4 million barrels last week—the largest single-week build since January 2023—as exports weakened and imports from Saudi Arabia and Venezuela rose.

In a research note published Wednesday, Jefferies analyst Sam Burwell, who covers oil, gas, and energy infrastructure equities, highlighted current extremes in global oil markets through several key observations.

Burwell noted that Chinese crude imports rebounded modestly in July but remain well below their previous run rate. While crude prices have retreated from their highs without a historic spike, diesel cracks—the spread between refined product prices and crude costs, a key gauge of refining profitability and product scarcity—have surged far above prior all-time records, with gasoline also showing strength. He described the current setup as constructive for crude prices and, by extension, the Canadian energy complex.

Regarding Chinese demand, Burwell observed that the approximately 5 million-barrel-per-day drop in imports following the Hormuz closure demonstrated the extent of China's demand elasticity. July did see a roughly 1 million-barrel-per-day month-over-month increase from June's lows. However, a return to the five-year average of approximately 11 million barrels per day would imply about 3 million barrels per day of incremental demand—a figure that will depend on August import data and beyond.

On refined products, Burwell noted that while diesel and gasoline prices are elevated, they remain closer to or within prior historical highs. Clean-product prices in 2008 were comparable on a nominal basis, meaning they were effectively higher in real terms.

The central takeaway, according to Burwell, is that global oil-market tightness is currently manifesting in refining margins rather than in crude prices. Wide cracks suggest refining runs should remain robust, which is supportive for crude demand. U.S. refinery utilization, while dipping slightly week over week, remains near 20-year seasonal highs.

China remains the key uncertainty for crude demand. With cracks at such elevated levels, Burwell questioned how long it would be before Chinese refiners increase crude imports to export more refined products or replenish domestic product and petrochemical inventories. The coming August import figures from China will be a critical data point for assessing whether demand recovery is underway.

Unless the Strait of Hormuz reopens promptly and fuel supplies recover meaningfully, market attention is expected to remain fixed on refined-product markets—particularly diesel, with Northern Hemisphere winter demand seasonality likely to further strain already tight supplies. Bank of America's commodities team cautioned that "the diesel market appears poised to stay tight, volatile, and expensive well into next year."

Source: ZeroHedge