In this issue of the Weekly Market Report, we provide an overview of developments in the oil and bunker markets over the past three months and present updated oil and bunker forecasts based on the assumption that the Strait of Hormuz will remain closed for the rest of the year, or “closed for longer”. We assume a gradual normalisation starting in Q1 2027.
ARA
Low demand, suppliers are fighting for volume.
Fujairah
Port of Fujairah July sales were 215kt in total and doubled vs June but still down 64% compared to July 2025.
Bunker demand remains low due to the ongoing conflict impacting vessel traffic across shipping segments.
Product availability week starting 17th Aug is good across all grades with prompt avails.
Port Louis
A quiet week in the market, avails tightening and suppliers seeing far less traction last week.
Durban
Another quiet market, with noted stems minimal top ups in the port. HSFO remains tight with high premiums with only one supplier having avails. VLSFO remains OK avails wise.
Walvis Bay
A busier market than in the last few weeks, as VLSFO prices remain aggressive as suppliers push for volume. Weather remains poor with all suppliers at anchorage.
New York
Demand has been extremely muted on USEC. Awaiting Q4 tenders to be sent out. Distillate premiums keep rising on demand, scarcity, and agro season approaching.
Malta
Still some issues on barge loadings, but not as bad as last weeks.
Houston
Demand is steady. Fuel oil premiums are steady.
Some refinery maintenance is scheduled for Q4 2026 which could cause intermittent disruptions to fuel oil supply chain. Major delays are not expected.
High premium volatility is expected through the end of the year.
For port availability and demand, download the full report here.
The oil and bunker markets have seen volatile months since hopes of a peace agreement gained momentum with the Memorandum of Understanding signed in mid-June. Initially, sentiment swung between expectations of an imminent peace agreement and reopening of the Strait of Hormuz, and fears of renewed fighting and further escalation.
However, hopes of an imminent peace agreement suffered a severe blow when the US resumed military strikes against Iran on 7 July. The US argued that attacks on commercial shipping breached the MoU. Iran subsequently suspended the agreement, and the 60-day negotiating window has now expired without a broader agreement.
More recently, President Trump has said that no negotiations with Iran are planned, while Iran insists that the Strait of Hormuz remains closed until the US meets several of its demands.
The market narrative has therefore changed significantly. Rather than asking when the Strait will reopen, the market increasingly has to consider a “closed for longer” scenario.
US shifts the focus back towards sanctions
The latest development is a shift in the US strategy away from another major military offensive and back towards economic pressure.
US Treasury Secretary Scott Bessent had promised what he called the toughest sanctions ever imposed on a country. The measures announced this week were, however, less dramatic than the rhetoric suggested.
The US sanctioned another 60 individuals, companies and vessels and warned countries doing business with Iran that they could ultimately lose access to the US financial system. However, Washington stopped short of immediately targeting major Chinese banks and other institutions facilitating Iranian trade. This is important because China remains by far the most important buyer of Iranian oil, and Iran has decades of experience circumventing sanctions.
The relatively modest market reaction was telling. Brent dropped marginally when the new sanctions were announced and is currently trading around USD 91. At the same time, Iran has promised to retaliate against the new measures. Hence, the sanctions do little to increase the probability of an imminent reopening of the Strait.
Some crude is moving, but Hormuz remains far from normal
There has been considerable debate about how much oil is actually moving through the Strait.
The US administration says that escorted flows have increased substantially. However, independent vessel tracking continues to show much lower commercial traffic. Recent data have shown only single-digit numbers of commodity vessels passing through the Strait on some days. But little doubt that some crude is getting through, but the Strait is far from functioning normally.
This distinction is important. Crude oil producers have some alternatives. Saudi Arabia and the UAE can bypass part of the Strait through pipelines, while high crude discounts can compensate buyers willing to accept the additional risk and cost of moving cargoes through Hormuz. For refined products, however, the alternatives are much more limited.
Diesel, gasoil, MGO may be the real energy chokepoint
In fact, crude oil may no longer be the biggest problem in the energy market. The real chokepoint is increasingly refined products, particularly diesel, gasoil, jet fuel and marine gasoil.
The latest IEA Oil Market Report shows that global refinery throughput remains almost 5 mb/d below last year's level. The closure of Hormuz has restricted product exports from the Middle East, while Ukrainian attacks on Russian refineries have added another source of disruption. At the same time, Asian refiners have shown little appetite for significantly increasing exports.
The result has been exceptionally strong refinery margins. The benchmark European gasoil crack has risen from around USD 20 to 25 per barrel before the war to around USD 80.
For the bunker market, this matters because tight distillate markets directly affect MGO and can also spill over into VLSFO through competition for blending components. Hence, even if Brent falls following a reopening of Hormuz, bunker prices and particularly distillate-related products may not fall by the same amount.
Inventories are increasingly important
Another major change since the early stages of the war is the depletion of inventories.
According to the IEA, global observed oil inventories had fallen by around 410 million barrels between the start of the war and the end of July. The IEA now estimates a global oil market deficit of around 1.8 mb/d in the third quarter.This means that the market has gradually lost one of the buffers that helped absorb the initial supply shock.
Consequently, even a reopening of the Strait would not immediately normalise the market. Inventories need to be rebuilt, production needs to restart and damaged refinery capacity has to return. Crude oil and refined products then have to be transported to consumers in Asia and Europe.
We expect oil prices to remain in the USD 80 to 100 range in the third and fourth quarters, assuming the Strait of Hormuz stays closed, though we assume somewhere between 3-7 mb/d of seaborne crude oil coming out of the Strait of Hormuz, primarily from tankers going dark and STS transfers.
In the first and second quarters of 2027, we should see inventories begin to rebuild, putting downward pressure on oil prices, as the Strait reopens in our main scenario.
The latest IEA numbers support the view that supply should improve significantly in 2027. Global oil supply is forecast to rebound strongly as Middle Eastern production gradually returns and output outside the region continues to grow. OPEC+ is also gradually increasing quotas. Iraq is pushing for a significantly higher production quota, while Kazakhstan has repeatedly demonstrated its willingness and ability to produce above agreed levels. UAE has left OPEC and one may argue that the cartel is no longer effective in controlling prices if we have an oversupplied market in 2027 and 2028.
At the same time, high prices are taking a toll on consumption. The IEA currently expects global oil demand to decline by 1.6 mb/d in 2026 before recovering in 2027. Hence, our longer term view remains more bearish. Once Hormuz reopens, inventories start rebuilding and Middle Eastern production returns, the oil market could again face downward pressure.
The risk is no longer merely a few weeks' delay in reopening. The latest political developments increasingly point towards a scenario where the Strait remains severely restricted for a considerably longer period. There is even a scenario where the Strait never returns to its pre-war status.
Bunker prices remain elevated, although the extreme availability concerns seen earlier in the war have eased. Physical availability in Singapore has certainly improved compared to March an April, but port premiums remain higher than before the war. Inventories remain below prewar levels and the market is still vulnerable to disruptions in Middle Eastern supply.
VLSFO remains particularly expensive relative to both Brent and HSFO. The VLSFO crack has increased significantly since the beginning of the war, particularly in Singapore. VLSFO is a blended product and therefore competes for many of the same feedstocks and blending components as the exceptionally tight distillate market. High gasoil and diesel cracks are therefore also supporting VLSFO.
The strength has been particularly pronounced in Asia. Reduced supplies of low sulphur fuel oil from the Middle East, combined with disrupted trade flows through the Strait of Hormuz, have tightened the Singapore market. Singapore fuel oils consequently continue to trade at a premium to ARA.
HSFO has performed considerably better from a supply perspective. High refinery runs generate more residual fuel oil, while HSFO depends far less on expensive distillate blending components. This divergence between VLSFO and HSFO pushed the Singapore HI5, or scrubber spread, higher during July and early August. The spread has narrowed over the past couple of weeks, but remains wide.
MGO remains the most expensive conventional marine fuel, as the underlying distillate market remains extremely tight. Reduced Middle Eastern exports, disruption to Russian refinery production and low inventories continue to support diesel, gasoil and MGO cracks. Hence, our view remains that VLSFO and particularly MGO are more exposed to the current energy chokepoints than HSFO. As long as the Strait of Hormuz remains severely restricted and the global distillate market stays tight, we expect HI5 spreads to remain well above pre-war levels. See the charts and our oil and bunker forecasts below and on the next two pages.
