Week in Review – Oil Prices Head Lower With More Gulf Crude Reaching Global Markets

Oil prices moved slightly lower this morning, with prompt WTI futures on track to finish the week down more than $4 per barrel. The market continues to balance persistent geopolitical uncertainty in the Middle East against signs that more oil is finding its way out of the Persian Gulf despite ongoing restrictions around the Strait of Hormuz.

Diplomacy remains complicated. Iranian Foreign Minister Abbas Araghchi said resuming talks with the United States "isn't impossible" and called on Washington to rebuild trust. However, the White House said the U.S. is not currently negotiating with Iran and that the blockade of Iranian ports remains in place. That leaves the possibility of future diplomacy on the table without signaling an immediate resolution to the conflict.

At the same time, the physical movement of oil through and around the Strait of Hormuz is improving. Middle Eastern producers are increasingly selling cargoes that can be collected outside the strait, while tankers are conducting "shuttle runs" to move barrels just beyond the Persian Gulf. Goldman Sachs Research estimates recent Gulf exports at roughly 15 million to 16 million barrels per day. While that remains 7 million to 8 million barrels per day below pre-war levels, it is about 5 million to 6 million barrels per day above the March low.

Daily vessel traffic shows that conditions remain far from normal. Preliminary data showed seven commodity vessels crossed the Strait of Hormuz on Thursday, compared with 17 the previous day and a 10-day average of 15. Those figures can change because some vessels switch off their transponders during voyages. Mediators are placing renewed emphasis on reopening the waterway, and Iran has agreed to develop conditions for restoring normal traffic, but negotiations over control of the strait are still continuing.

The disruption is also changing how Gulf producers think about energy infrastructure. Saudi Arabia, the UAE, and other countries are accelerating investments in pipelines, ports, and alternative transportation routes to reduce their dependence on the Strait of Hormuz. Trade is already being redirected toward Saudi ports on the Red Sea and UAE ports outside the strait, although current capacity is more limited.

The UAE, for example, plans to accelerate construction of a new pipeline that would double its export capacity through Fujairah by 2027. Saudi Arabia has also fast-tracked plans to expand crude pipeline capacity toward its western Red Sea coast. These projects will not immediately eliminate the market's exposure to Hormuz, but they illustrate how the conflict is reshaping longer-term crude transportation strategies across the region.

Oil flows are shifting in other ways as well. Saudi Arabia is selling heavier crude grades to Chinese refiners, with China showing greater willingness to accept Middle Eastern barrels that can be delivered outside higher-risk areas.

Outside the Middle East, Russian refining remains another source of supply uncertainty. Ukraine struck a major Russian refinery overnight, causing a fire at the facility. The attack came after at least 21 strikes on Russian refineries during August, keeping refined product supply risks in focus.

For now, the market appears to be responding to the gradual improvement in Gulf oil movements even though the broader geopolitical situation remains unresolved. More barrels are moving than they were earlier in the conflict, but flows remain below pre-war levels, vessel traffic continues to fluctuate, and producers are still investing heavily in ways to bypass one of the world's most important energy chokepoints.

Prices in Review

Crude prices moved lower through midweek before recovering some of the losses. Prices opened at $86.50 on Monday, declined to $85.03 on Tuesday, then fell to $81.11 on Wednesday. Crude prices then rebounded to $82.00 on Thursday and $83.67 on Friday. Overall, crude prices decreased by $2.83 per barrel, representing an approximate 3.3% decline during the week.

Diesel prices declined during the first half of the week before recovering modestly toward Friday. Prices opened at $4.4500 on Monday, fell to $4.2885 on Tuesday, dropped to $4.1673 on Wednesday, and moved back up to $4.2348 on Thursday and $4.2769 on Friday. Overall, diesel prices decreased by $0.1731 per gallon, representing an approximate 3.9% decline during the week.

Gasoline prices moved lower early in the week before reversing course and finishing higher. Prices opened at $3.3244 on Monday and declined to $3.2658 on Tuesday, before reaching a weekly low of $3.2216 on Wednesday. Prices then recovered to $3.2913 on Thursday and climbed to $3.3773 on Friday. By the end of the week, gasoline prices were $0.0529 per gallon higher, an increase of approximately 1.6%.