Hormuz Bypass Tactics Push Oil Prices Lower

Oil prices moved lower this week as reports indicated that Persian Gulf producers are finding additional ways to move crude and refined products around restrictions in the Strait of Hormuz, including ship-to-ship transfers and alternate pipeline routes.

Renewed optimism surrounding U.S./Iran peace talks faded by week's end, while a very small increase in U.S. crude inventories and new economic sanctions on Iran had little apparent impact on prices.

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Oil

Fundamental Analysis

Crude prices fell this week as various sources reported increased oil flows out of the Persian Gulf as producing countries used varying methods to bypass the Strait of Hormuz and conduct ship-to-ship transfers.

Earlier in the week there were signs of optimism regarding peace talks between the U.S. and Iran, but those appeared to have stalled by week's end. A very small inventory build did not dampen the bearish sentiment, while new U.S. economic sanctions on Iran and its counterparties had no apparent impact on prices.

WTI's high was Monday's $84.70/bbl for October, while the low was Wednesday's $78.55. October Brent crude also hit its high Monday at $93.80/bbl, with the low Wednesday at $85.40. Both grades settled lower on the week. The WTI/Brent spread tightened to $5.95.

Some observers of Middle East oil flows estimate that as much as 7–8 million barrels per day may now be leaving the Persian Gulf, roughly half of pre-war levels.

Persian Gulf producers are using a variety of short-term measures to move crude and refined products. Saudi Arabia has used its East-West pipeline to deliver crude to its Red Sea port, while also using smaller tankers in the Persian Gulf that travel closer to Oman before transferring cargoes to larger merchant vessels in the Gulf of Oman.

Qatar and the U.A.E. are reported to be working jointly on a similar operation. Iraq has also moved some volumes north through Turkey by pipeline and then toward the Mediterranean Sea. While these are largely short-term fixes, the same countries are developing longer-term projects designed to reduce reliance on the Strait.

U.S./Iran settlement talks reached another impasse after the White House indicated it would not return to the temporary peace terms established in June. Oman and Iran also have not reached a definitive agreement for joint management of the Strait of Hormuz, leaving its future uncertain.

Venezuela's oil industry prospects continued to improve as Chevron was reported to be nearing a deal that could add two new heavy-oil fields to its existing operations. Halliburton is also working to bring more equipment to producers there.

Canadian bitumen production, meanwhile, could decline by approximately 300,000 barrels per day next month because of maintenance in the oil sands. U.S. gasoline and aviation fuel demand should also begin to ease as the peak summer travel season ends.

U.S. Petroleum Snapshot

The Energy Information Administration's Weekly Petroleum Status Report indicated that commercial crude oil inventories increased by just 95,000 barrels to 429 million barrels, approximately 1% above the five-year average.

Gasoline inventories decreased 2.5 million barrels to 207 million barrels and remain 6% below the five-year average. Distillate inventories decreased 2.2 million barrels to 103 million barrels and remain 14% below the five-year average.

Refinery utilization increased to 97.4%, compared with 97.2% the previous week, while crude inputs remained around 17.4 million barrels per day.

Gasoline demand increased to 9.0 million barrels per day from 8.7 million barrels per day the previous week. Crude imports were 6.2 million barrels per day, while crude exports declined to 3.8 million barrels per day.

The Strategic Petroleum Reserve declined another 3.7 million barrels to 290 million barrels, its lowest level since 1982. Stocks at Cushing, Oklahoma increased 1.2 million barrels to 22.4 million barrels, or approximately 30% of capacity.

U.S. crude production remained at 13.8 million barrels per day. The U.S. oil and gas rig count was unchanged at 588.

Gasoline prices were $4.09 per gallon, down $0.02 from the previous week but still $0.87 higher than a year earlier.

Oil – Technical Analysis

October WTI NYMEX futures are trading above the 20-day moving average but below both the 8- and 13-day moving averages. Friday's tight trading range indicated uncertainty heading into the weekend.

Volume was below the recent average at approximately 117,000 contracts. The Relative Strength Indicator was neutral at 55.

Oil – Looking Ahead

While estimates differ on exactly how much oil is making it through or around the Strait of Hormuz, shipments are moving. That is bearish for crude prices, particularly as the summer travel season winds down.

Iran and Oman may eventually reach an agreement to administer the Strait and impose some level of transit fees, which would make passage more expensive than before the conflict and provide additional incentives for bypass projects.

Refined-product demand is expected to remain strong for at least several more weeks as global markets rebuild inventories. In the U.S., policymakers will also eventually have to determine when and how to restore crude volumes withdrawn from the Strategic Petroleum Reserve.

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Natural Gas

Fundamental Analysis

October NYMEX Henry Hub natural gas futures gained this week as the September contract rolled off Thursday. Continuing hot weather and a smaller-than-forecast storage injection provided most of the support.

The week's high was Thursday's $2.99/MMBtu, while the low was Monday's $2.76. The Henry Hub contract remains in a seven-week downtrend overall.

Natural gas demand this week was estimated at approximately 118 Bcfd, with power consumption increasing by 1.0 Bcfd. Supply was estimated at approximately 120 Bcfd.

LNG exports were approximately 18.2 Bcf, while exports to Mexico declined to 7.6 Bcfd.

International natural gas markets remain considerably stronger. U.K. NBP natural gas was most recently at $22.10/MMBtu, Dutch TTF futures were $22.60/MMBtu and Asia's JKM was quoted at $23.40/MMBtu as Asian and European markets continue competing for LNG shipments.

The EIA's Weekly Natural Gas Storage Report indicated an injection of 15 Bcf compared with a forecast of 21 Bcf and a five-year average of 33 Bcf.

Total natural gas in storage now stands at 3.184 Tcf, 0.9% below last year but 5.5% above the five-year average.

Natural Gas – Technical Analysis

October 2026 NYMEX Henry Hub natural gas futures are trading above the 8-, 13- and 20-day moving averages. Volume is approximately in line with the recent average at 120,000 contracts. The RSI is neutral at 53.

Natural Gas – Looking Ahead

The 8–14-day forecast looks favorable for natural gas-fired generation across much of the U.S. as record-high temperatures spread farther north.

Wildfires and drought are affecting several states. While global LNG prices remain strong, the U.S. is currently exporting at maximum output.

Domestic supply surpluses are expected to continue, which should increase storage injections as fall approaches and temperatures begin to moderate. Based on current storage levels, the natural gas market appears well supplied heading into winter.

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Weekly Oil & Gas Commentary is provided for informational and educational purposes and should not be considered investment, trading or financial advice.