Yesterday (July 27), the most active Brent futures contract closed down by approximately 7.5%, quoted at USD 88.36/bbl, with an intraday low around USD 87.4 and a high near USD 93.6. WTI followed the same direction, settling at USD 82.61/bbl (–8.7%). The session extended the downward trend for the third consecutive session.
The primary driver was the announcement of a suspension of hostilities between the US and Iran against military assets in the Persian Gulf, increasing expectations of a resumption of diplomatic negotiations. Simultaneously, Oman submitted to Iran a proposal for a joint regional mechanism to manage the Strait of Hormuz with voluntary tariffs, receiving support from Middle Eastern countries. The market priced in the geopolitical relief, partially disregarding the ongoing lack of material recovery in flows through the Strait of Hormuz—which remain suppressed—and the Houthi attack on the Jazan refinery and Yanbu port.
This morning (July 28), at around 08:40 AM, Brent traded at USD 86.7/bbl (–1.9%) and WTI at USD 81.4/bbl (–1.5%), hitting lows not seen for over a week. Investors maintain a bearish bias while pricing a higher likelihood of a diplomatic agreement, but the risk premium attached to Saudi infrastructure currently prevents a sharper decline.
Jazan refinery halted after Houthi attack
Saudi Aramco suspended operations at the Jazan refinery, with a capacity of 400 kbpd, following yesterday's Houthi attack that damaged the IGCC gasification complex and the tank area. Aramco projects restart by August 15. The Houthi military spokesperson confirmed simultaneous attacks on Jazan and Yanbu, indicating an expansion of the war front to Saudi refining infrastructure beyond the Strait of Hormuz.
Why does this matter: The shutdown of Jazan removes capacity equivalent to about 2% of global demand for refined products from the market, exerting particular pressure on diesel and naphtha supply for Asian and African markets reliant on Saudi exports. In the medium term, recurrent attacks on refining infrastructure elevate the risk premium even in de-escalation scenarios around the Strait of Hormuz, as they diversify disruption vectors for supply.
What to expect? As long as repairs at Jazan remain incomplete and attacks on Saudi infrastructure persist, the market will maintain a residual risk premium even with progress in US-Iran negotiations. Should additional facilities be targeted before the reopening of the Strait of Hormuz, pressure on refined products is likely to intensify within an environment already characterized by elevated refining margins and limited room for further supply disruptions.
Strait of Hormuz: suppressed flows limit further bearish repricing
Despite diplomatic signals, tanker flows through the Strait of Hormuz remain low, with no significant recovery recorded by Kpler data as of July 28. Traffic through Bab el-Mandeb rose to 28 vessels on Monday—a four-day high, though still well below levels seen prior to the Houthi blockade.
Why does this matter: Without normalization of physical flows, futures market declines reflect expectations rather than fundamentals; any additional supply disruption could trigger pronounced upside volatility, while further downside potential hinges on operational confirmation of reopening.
What to expect? The current scenario is one of gradual price retreat conditioned on diplomatic progress, but the lack of measurable recovery in flows through the Strait of Hormuz keeps the global balance fragile. If negotiations between Oman, Iran, and the US advance without operational evidence of reopening the Strait, prices are likely to stabilize within the current range in the short term. Conversely, any renewed military escalation or further attack on Saudi infrastructure would promptly reverse the bearish movement.
US strategic reserves hit lowest level since 1983
Inventories in the US Strategic Petroleum Reserve (SPR) declined by 3.7 million barrels last week, to 307.7 million barrels—the lowest level since March 1983. This move is part of a government release agreement of 172 million barrels aimed at mitigating price pressures stemming from Middle East conflict.
Why does this matter: With the SPR at historic lows, the US government's ability to buffer new supply shocks through additional releases is structurally limited, reducing the safety cushion available should the conflict escalate. Domestic production near 13.8 mbpd offers some compensation, but refineries are already running near maximum capacity and gasoline inventories are 9% below last year's level.
What to expect? With the SPR at a critical level and domestic production near its ceiling, any new supply shock originating in the Middle East will encounter diminished US response capacity via strategic reserves. Should the conflict persist and flows through the Strait of Hormuz fail to normalize in Q3 2026, the pressure on refined products in global markets—and on diesel import costs for Brazil—is likely to increase.
