Irina Slav

Two Chinese very large crude carriers turned back in or near the Strait of Hormuz and are currently idling, according to ship-tracking data. The moves follow decisions by COSCO Shipping Energy Transportation and China Merchants Energy Shipping to divert vessels from the Strait of Hormuz and Bab el-Mandeb because of heightened drone and missile threats. Chinese tanker operators are instead using longer routes and ship-to-ship transfers in the Gulf of Oman, outside the strait, handling about 600,000 barrels per day on average during June and July. The diversions increase voyage times and waiting periods but allow operators to continue transporting Middle Eastern oil while limiting security exposure.

Escalating U.S.-Iran tensions and the prospect of renewed disruption around the Strait of Hormuz have pushed Brent crude above $91 per barrel and West Texas Intermediate above $85. The U.S. diesel crack spread exceeded $100 per barrel for the first time, reflecting a deepening global fuel shortage. Lower refinery runs, a shift toward gasoline and jet-fuel production, Ukrainian attacks on Russian refineries, and Russia’s resulting diesel-export ban are tightening supplies and increasing pressure on oil and fuel markets.

Europe is approaching the heating season with gas inventories at a 17-year low and less supply available for purchase than in 2022. Competition with Asian LNG buyers is intensifying as Middle Eastern flows remain disrupted and the European Union prepares to ban Russian LNG imports. Elevated summer demand, cautious gas traders and uncertainty over future U.S. export capacity could force European governments or buyers into a costly bidding war to refill storage. Although supplies from the United States, Norway, Algeria, Azerbaijan and Russia via Turkey can help meet demand, storage remains essential because winter consumption can double and prices may rise sharply.

Tanker traffic through the Strait of Hormuz fell to five inbound and four outbound crossings, below the monthly average, while most vessels used the Iranian corridor. The slowdown comes as the United States threatens to maintain its naval blockade of Iran indefinitely and impose additional sanctions, suggesting that the standoff is unlikely to end soon. Despite the shipping risks, oil prices were restrained by a reported 17.4-million-barrel increase in U.S. commercial inventories. Analysts warn that declining global inventories, strategic-stockpile drawdowns and China’s return to higher crude purchases could push the physical oil market toward shortages and sharply higher prices if the deadlock persists.

India proposed up to 638 million metric tons per year of new coal power capacity in the past year, nearly doubling the previous year’s total and contributing to an 11% rise in global planned capacity, according to Global Energy Monitor data cited by Reuters. The expansion reflects India’s focus on energy security amid rapidly growing electricity demand, alongside plans to raise domestic coal production to 1.15 billion metric tons this fiscal year and 1.5 billion metric tons in fiscal 2026/27. Globally, planned coal mine additions fell nearly 40% to 113 million metric tons annually. India is also increasing renewable installations and reducing thermal coal imports by shifting power plants from imported to domestic coal, but coal is expected to remain central to its power system for at least two decades.

Ukrainian attacks on Russian refineries and Houthi attacks on Saudi energy infrastructure are intensifying an already severe global diesel shortage. U.S. diesel futures rose 7.4% in a week, retail prices reached $5.32 per gallon, and European refining margins climbed to record levels. Refiners in the United States and elsewhere are operating near their maximum capacity just as maintenance season approaches, leaving little room to replace lost supply. Europe’s reduced refining base, Russia’s diesel export restrictions, China’s fuel export controls, and prolonged Middle Eastern production outages are expected to keep fuel markets tight through at least the end of 2026 and potentially into 2027, increasing inflationary pressure and potentially affecting transport electrification and EV demand.

Global gas turbine orders reached 38 gigawatts in the second quarter, up 29% from the previous quarter and 71% year over year, according to JPMorgan. Siemens Energy recorded 12.5 GW of orders, General Electric 11.3 GW and Mitsubishi Power 5.3 GW, with the United States accounting for half of total demand. Rapid electricity consumption growth from data centers, artificial intelligence and manufacturing onshoring is driving the surge, while limited manufacturing capacity is causing equipment shortages, longer lead times and sharply higher costs. Wood Mackenzie expects turbine orders to peak in 2026 as developers secure equipment for planned gas-capacity additions through 2030.

Crude oil prices rose as prospects for a lasting U.S.-Iran peace agreement weakened. President Donald Trump demanded that Iran pay reparations for war-related damage, while Tehran maintained conditions for reopening the Strait of Hormuz and said the waterway would remain closed until the United States met them. Analysts said the impasse leaves oil prices exposed to further upside risk, although shipments continue through the strait, in part with tankers disabling transponders, and Iraq reported average exports of about 2 million barrels per day.

ADNOC Gas will invest $8.2 billion in its Rich Gas Development project in the United Arab Emirates, in addition to a previously announced $5 billion commitment. The spending includes $3.9 billion for a new gas-processing train at the Habshah facility and $4.3 billion for a natural-gas-liquids fractionation unit at Ruwais LNG. Ruwais is expected to begin operations in late 2028 and more than double ADNOC Gas’s LNG capacity to about 15 million tons per year. The company is targeting 60% EBITDA growth by 2030 as it expands gas processing and exports amid expectations of strong global demand.

China’s crude oil imports rose 22% from June to an average of 8.45 million barrels per day, reversing a decade-low slump caused by high prices and constrained Middle Eastern supply. Large domestic inventories—estimated at 1.397 billion barrels at the end of 2025—allowed Beijing to reduce purchases for several months and help limit global oil-price increases. As supply disruptions continued, Sinopec reportedly secured 30–40 shipments of Russia’s ESPO crude for delivery between July and September, signaling China’s return to international markets and a potential challenge for bearish oil-market expectations.

Electricity demand in northern, northeastern, and eastern China reached record levels as a severe heatwave drove increased air-conditioning use. State Grid Corporation of China said it was redirecting baseload electricity to meet demand, with no blackouts reported. The company plans to invest $574 billion through 2030 to upgrade and expand transmission and distribution infrastructure. China is simultaneously expanding wind and solar generation, coal-fired capacity for reliability, and battery storage, with storage capacity targeted to more than double to 180 gigawatts by 2027.

China has temporarily raised refined-fuel export allowances to 2.7 million tons for gasoline, diesel, and jet fuel, up from the 800,000 tons permitted for state refiners in July. The quotas exclude Hong Kong and Macau and may be partly carried into September. The move follows earlier restrictions imposed after the Middle East conflict and Strait of Hormuz disruption intensified global fuel shortages. Rising domestic stockpiles, including a crude reserve estimated at more than one billion barrels, helped enable the policy shift, while June fuel-oil exports reached their highest level since early 2026 amid strong international demand.

Germany’s total energy demand fell 1.9% in the first half of the year as high oil and gas prices reduced oil-product consumption by 8%. Diesel use declined nearly 6%, gasoline use fell 0.6%, jet fuel declined 1%, and light heating-oil consumption plunged more than 30%. Coal consumption rose 7% and natural-gas use increased 1.3%, leaving hydrocarbons responsible for 75.9% of energy consumption. Wind and solar increased their share to 22.2%, while renewables supplied a record 58% of electricity generation, although weak wind conditions and grid-capacity constraints continue to hinder Germany’s energy transition.

Kuwait’s crude production rose to 1.971 million barrels per day in July from 1.65 million in June and 580,000 in May, indicating that oil is still moving out of the Persian Gulf despite reduced Strait of Hormuz traffic. The increase coincides with OPEC+ plans to raise production targets by another 188,000 barrels per day in September, effectively completing the reversal of cuts introduced in 2023. However, security risks and shipping disruptions make the targeted output increase difficult to realize. Saudi Arabia has rerouted exports because of regional threats, while Ukrainian drone attacks and repeated Caspian Pipeline Consortium suspensions have driven Kazakhstan’s production sharply lower.

India is considering waiving interstate transmission charges for solar and wind projects delayed by shortages of grid capacity. The relief would apply to developers with qualifying seven-year power-sale contracts and may be extended to battery-storage projects. The measure is intended to help India meet its target of 500 GW of non-hydrocarbon generation capacity by 2030, but progress is threatened by limited transmission infrastructure and efforts to reduce reliance on Chinese solar components, particularly because domestic solar-cell manufacturing remains far below module capacity. Solar capacity additions reached a record 44 GW during financial year 2025/26, while coal still supplies about 70% of India’s electricity generation.

Saudi Arabia is exhausting its alternatives for exporting crude after disruptions to the Strait of Hormuz and Houthi threats to Red Sea shipping. The Kingdom shifted Arab Light volumes through the 7-million-barrel-per-day Petroline to Yanbu, driving exports there sharply higher, but Yanbu loadings later declined as security risks intensified. Saudi vessels are now moving north toward Egypt, using the Suez Canal and SUMED pipeline, whose combined capacity is far below the volumes previously handled through Gulf and Red Sea routes and is partly reserved by other users. Unless Hormuz traffic normalizes or the Houthi blockade ends, Saudi exports are likely to fall, potentially requiring other producers to replace the lost supply. Higher oil prices have improved Saudi oil revenues and narrowed its budget deficit, but lower production and geographically vulnerable export infrastructure continue to pressure the economy and global oil markets.

JERA says Japan has secured enough LNG to meet peak summer electricity demand from August through October, with no expected power shortages. The company has reduced purchases from Qatar, is using global trading to secure winter supplies, and is diversifying away from Middle Eastern sources toward suppliers such as the United States and Malaysia. JERA recently agreed to buy 2 million tons of LNG annually from Malaysia’s Petronas beginning in 2028 and plans to increase U.S. LNG purchases to as much as 5.5 million tons per year. Japanese utilities also increased coal generation earlier in the year to bolster supply security.

QatarEnergy has sent an LNG carrier through the Strait of Hormuz for the first time since one of its vessels was struck three weeks earlier. The tanker is reportedly headed to Pakistan, where supply shortages have forced buyers onto the expensive spot market. The crossing may signal preparations to restore Qatari production, but the company’s force majeure remains in effect after damage to the Ras Laffan facility, which could cost about $20 billion annually in lost revenue and take up to five years to repair. Renewed conflict and higher insurance costs are likely to delay recovery and intensify pressure from Asian and European buyers for lower prices.

Crude oil prices edged lower despite renewed U.S.-Iran hostilities, missile attacks involving U.S. forces in Jordan, strikes on Iran-aligned groups in Iraq, and a drone attack on LNG tankers at Egypt’s Damietta port. Traders focused on evidence that commodity carriers were still exiting the region through the Bab el-Mandeb Strait, while tanker traffic through the Strait of Hormuz remained subdued. Analysts warned that continued targeting of Saudi energy infrastructure could cause prolonged supply disruptions, particularly in middle distillates, although alternative routes and workarounds may gradually reduce Iran’s leverage over Hormuz.

The UAE continues exporting LNG despite heightened threats to shipping in the Strait of Hormuz. An ADNOC LNG tanker reportedly exited the strait with its tracking devices disabled, while another was loaded at Das Island. ADNOC is expanding its LNG position as Qatar’s Ras Laffan hub operates under force majeure, ordering four new carriers and building eight more under long-term charters. LNG buyers are pressing Qatar and the UAE for lower prices, arguing that increased regional danger will raise insurance and transportation costs.

Australia has launched a feasibility study for a new oil refinery that could become the country’s first in 60 years. Prime Minister Anthony Albanese says domestic refining would strengthen fuel resilience and reduce vulnerability to global disruptions. Australia imports most of its transportation fuel, and supply pressures worsened after the Hormuz crisis and a fire at one of its two remaining refineries. The government responded with a temporary fuel-excise cut, emergency diesel purchases from Brunei and South Korea, and jet-fuel imports from China. The project’s location and commercial viability remain to be determined, while the government continues to support a longer-term shift from fossil fuels toward wind and solar.

Saudi Arabia may raise the price of crude sold to Asian buyers by as much as $5 per barrel to compensate for higher shipping costs caused by Houthi attacks and reduced traffic through the Bab el-Mandeb Strait. Saudi Aramco is rerouting crude from Yanbu through Egypt’s Ain Sukhna and Sidi Kerir terminals, with tankers then traveling around Africa, adding roughly a month to the journey and potentially costing about $10 million more per cargo. The rerouting reflects growing pressure on Middle Eastern oil transport as both the Red Sea and Strait of Hormuz become increasingly difficult to navigate.

China’s crude oil imports are estimated to have risen to an average of 7.8 million barrels per day in July, up from 6.2 million barrels per day in June, according to Kpler data cited by Bloomberg. Increased purchases of Russian crude and greater arrivals from the Middle East could support oil prices. The shift comes amid disrupted shipping through the Strait of Hormuz and heightened tensions involving the United States, Iran and Iran-linked Houthis. Although U.S. and Iranian attacks have paused, Iranian officials reportedly view the halt as tactical rather than a durable peace agreement.