Mita Chaturvedi
Research Associate, Flux
Anatomy of a Jawbone
July was defined by the renewed hostilities between Iran and the US, with President Trump declaring the MOU “over” on 8 July....
July was defined by the renewed hostilities between Iran and the US, with President Trump declaring the MOU “over” on 8 July. This comes after Iran launched attacks on three commercial ships off the coast of Oman, claiming the ships were not transiting through the Iranian-approved Northern route. The US retaliated thereafter, striking roughly 90 Iranian military targets overnight
Crude prices spiked over the course of the month, with the Sep’26 Brent futures rising from $70/bbl at the start of July to intraday highs of $102/bbl on 23 July. The rally was amplified by short covering flows, where the futures market previously saw an extreme buildup of shorts as speculators added positions for 13 consecutive weeks in anticipation of peace. Fanning the bullish flames further were the Iran-aligned Houthis who also entered the fray, declaring a naval blockade on Saudi Arabia and 20 July, making good on that threat by attacking two Saudi-flagged oil tankers in the Southern Red Sea on 23 July.
Going into the start of August, Brent is trading in the low $80s given increased prospects of de-escalation, with President Trump halting the planned strikes on Iran over the weekend. The Strait of Hormuz remains shut, with diplomacy and dialogue being pursued. Indeed, despite the continued belligerent rhetoric from both sides, neither side appear ready for an all-out war and maximum escalation. Both sides believe they hold leverage, with the US continuing its naval blockade of Iranian ports on top of economic sanctions, while Iran plays the Hormuz card. Iran has also achieved deterrence, given their threats of striking gulf infrastructure in retaliation against potential US strikes Iranian power plants or bridges. Meanwhile, the bond vigilantes are back in the US, with 30-year treasury yields reached a 19-year high after the Fed kept rates unchanged, highlighting concerns around managing the inflationary impact of Trump’s war in Iran.
From a technical perspective, momentum in Brent is neutral, with the RSI sitting around 50, while prices have mean reverted to the middle of the Bollinger bands. As such, from these levels, there is ample room for further upside or downside. Brent has been in a bullish trend since July, but in a longer-term bearish trend since May. Prices may consolidate around the $80 level until further headlines and greater clarity around peace talks move the needle. ICE COT money manager positioning indicates that overall positioning remains on the bearish side, at the 25th percentile for all weeks since 2013. At these levels, shorts may look to re-enter, given the continued jawboning efforts from the White House which could continue to keep hesitant longs sidelined. After all, recent events have once again demonstrated that triple-digit crude prices are unpalatable for the administration, with de-escalation headlines taking the wind out of the bullish momentum. Finally, looking at CTA positioning, Brent positioning is overcrowded to the buyside, which may magnify potential downsides in price action.
Looking at the physical crude markets, it was a dramatic month for Dated Brent as the complex saw elevated volatility. Amidst a deep physical overhang, the Dated Brent physical differential swung sharply into the positives from -$1.345/bbl on 20 July to $2.40/bbl on 23 July, all over the course of one week. The physical converged with futures strength and then some, as disruptions at the CPC terminal amplified the bullish sentiment. The front-month DFL rallied from $2 to $8/bbl before giving up gains and falling back to the $2/bbl level over a week. In the final week of July, it was reported that CPC suspending crude loadings again after drones struck tankers, with the consortium considering a complete halt of oil loading operations. Again, the Aug’26 DFL rallied to over $6/bbl, highlighting the extreme volatility in the market. Going forward, CPC operations (or the lack thereof) will be a major factor influencing market sentiment, and the market will be looking for a solver. Dated/Dubai is extremely high, so the arb to the East is uneconomical, so WTI Midland may potentially replace CPC if differentials are offered lower.
Moving to the Middle East, the Brent/Dubai differential initially narrowed after the escalation of hostilities but subsequently rallied to highs of $8.50/bbl in Aug’26, which is the highest level for M1 since 2022. Previously, prices were trading between a range of $3 and $6.50/bbl, with the latter level now acting as support with Atlantic Basin crudes pricing stronger. Despite the bullish headlines, Saudi oil continues to flow despite the Houthis’ blockade via the Sumed pipeline workaround. Going into the new month, momentum in Brent/Dubai is firmly on the bullish side, buoyed further by EFS buying and US tender hedging. Supply disruptions from the Hormuz closure is priced in, and the prompt contract will look to target the previous month’s highs. While higher outright Brent/Dubai levels are likely to keep gasoil cracks elevated, the typical arbitrage dynamics of Brent/Dubai may still be in play, where the spread would widen to a level that will incentivise greater buying of Dubai-linked crude. Elevated volatility will likely remain a key theme here as the market grapples with the constantly evolving situation in the Straits.
Moving down to the refined complex, the defining product of the month has undeniably been gasoil, with the M1 ICE LS gasoil crack rallying above $80/bbl, recording an all-time high. Disruptions in the Persian Gulf along with the Bab al-Mandab strait have disrupted flows from the East of Suez, while within Europe, the continued firing between Russia and Ukraine has led to a ban on Russian diesel exports, which the nation has extended until January 31, 2027. The trifecta to finish off the supply tightness in Europe emerges from within the continent, where water levels in the Rhine River at Kaub dropped to 25 cm on 31 Jul, near record lows last seen in 2018.
The low levels in the Rhine have also led to disruptions in the European petrochemical industry, with naphtha and LPG transport logistics also being severely impacted, forcing people to opt for more expensive transport alternatives such as rail cars, which raises the delivered cost of naphtha or LPG to stream crackers. This follows outages and force majeure announced by plants such as LyondellBasell's butadiene extraction unit and Shell's steam cracker in Wesseling in July, and it will be increasingly important to monitor as physical players enter August contract discussions. ARA naphtha inventories have risen to 60% above the 5-year average in the week ending 29 Jul, likely due to naphtha pooling in the hub amid being unable to move inland.
Meanwhile, the M1 propane East/West eased from above $190/mt on 22 Jul to $150/mt on 27 Jul due to the strength in NWE propane, where it met support on the back of a strong FEI complex. The Aug/Sep’26 FEI spread rallied from $9.95/mt on 01 Jul to $46/mt on 22 Jul, where it met resistance, but it remains strong at $38.40/mt on 29 Jul. Positioning-wise, flows have been skewed to the buy-side in the Aug/Sep’26 FEI, with 626kb of net buying in the Aug/Sep’26 FEI. We also saw consistent buying in the soon-to-be M1 Sep/Oct’26 FEI spread this month until 27 Jul, before we saw trade houses trim some of these positions. Moreover, the Aug LST/FEI arb has been under huge pressure over July. The contract fell to -$334/mt on 23 Jul before rising to -$270/mt on 28 Jul. The contract has since been under heavier pressure, to -$295/mt on 29 Jul. On the fundamental side, water levels in the Gatun Lake are forecast to drop in the near-term, with levels in August forecast to drop below the 5-year average of 85 ft. NOAA puts the odds of a very strong El Niño event at 81% for Oct–Dec, which would place it among the strongest since 1950. This may exacerbate the tightness in the Gatun Lake further, supporting FEI and pressuring the LST/FEI arb. Still, some support for US propane may come from players switching over from MEG propane as the war continues. Key nations such as India switching over to US LPG would also support US butane, as India typically buys split cargo.
Finally, gasoline has also seen good support this month, with the Aug’26 EBOB crack rallying to nearly $40/bbl by the end of July, after beginning the month at $31/bbl. Still, open interest remains above the 5-year high, but has plateaued and declined in recent sessions, which suggests risk capacity may have been reached. Similarly, OI in Sep'26 now stands only 3% below the 5-year maximum, hinting at potential oversaturation in the current M1 EBOB crack. Positioning in the Aug’26 and Sep’26 EBOB crack shows some selling by trade houses and refiners, who are well out of the money, and could stop out of these positions should we see further upside. Finally, in the East, we saw a surge of strength in Singapore 92 cracks at the end of the month, driven by trade houses and refiners adding to their longs in the Sep’26 crack amid disruptions in the Red Sea.
Premium Content
To continue reading this page, please login or find our about our subscription options.
Written by
About Oil Market Report
A monthly premium report detailing key market factors and movements
Related News
Brent Trades Choppily As Freight Rates Rise
Brent chops lower as Russia exports face freight risks, India raises fuel taxes, and Hormuz LNG incident adds caution.
A Week of Two Halves
Gasoline cracks retreat on easing geopolitical risk, while TA arb selling and bearish positioning point to further downside.
14 page report
Testing Support?
The naphtha complex continued to weaken into this week....
17 page report
Brent opens lower as Trump calls off strikes on Iran
Brent opens $4 (5%) lower as Trump cancels strikes on Iran, returns to diplomacy; OPEC+ boosts September production by 188kb/d