Geopolitical Risk Returns as Drone Strikes Hit Hormuz Shipping
Geopolitical Risk Returns as Drone Strikes Hit Hormuz Shipping.
Drone strikes in the Strait of Hormuz lifted oil prices as geopolitical risks resurfaced, even as weak physical crude markets continue to weigh on sentiment.
- Saudi national oil company Saudi Aramco (TADAWUL:2222) has slashed its official selling prices for Asian-bound cargoes in August by a whopping $11 per barrel, almost double the expected cut.
- Marking the first time since 2020 that Saudi barrels in Asia trade at discounts to regional benchmarks, Aramco's drastic price cut brings its flagship Arab Light $1.50 per barrel below Oman/Dubai.
How are geopolitical tensions affecting global energy markets?
- Chinese demand for Saudi barrels is yet to recover after nominations for June collapsed to just 14 million barrels (470,000 b/d), the lowest reading on record, whilst flows to the United States have dried up completely.
- Faced with plunging European demand, Saudi Aramco dropped its formula prices by an even more formidable $15 per barrel, marking the largest monthly OSP reduction for both Asia and Europe since at least 2000.
- Saudi Arabia is taking its time to bring back all its idled production capacity – even though Aramco restarted loadings in the Gulf port of Ras Tanura, flows are relatively low around 1 million b/d in July to date, well below the pre-war rate of 6 million b/d.
- UK oil major BP (NYSE:BP) has agreed to sell its non-operated stakes in 10 licenses associated with Canada's offshore Bay du Nord project to Norwegian state oil firm Equinor (NYSE:EQNR), without disclosing the terms of the deal.
- US oil major Chevron (NYSE:CVX) signed a heads of agreement with Iraq's upstream giant Basrah Oil Co. to study two alternative crude export pipelines, Basrah-Ceyhan and Basrah-Baniyas, that would allow Iraqi production to bypass the Strait of Hormuz.
- Italy's national oil company ENI (BIT:ENI) is buying a 25% stake in the Chilean lithium project developed by US startup Energy Exploration Technologies for $225 million, marking another oil major entry into lithium. - London-based energy major Shell (LON:SHEL) has signed a deal to sell its 50% stake in the Na Kika oil platform in the US Gulf of Mexico to a consortium of offshore specialists, Talos Energy (NYSE:TALO) and Ridgewood Energy, for a consideration of $1.7 billion. Tuesday, July 07, 2026
Two drone strikes on ships surreptitiously transiting the Strait of Hormuz and oil prices have suddenly rediscovered the geopolitical risk premium, with ICE Brent touching $74 per barrel again. At the same time, physical oil markets feel extremely weak, even if that malaise might be temporary on the back of millions of barrels of stranded Gulf crude seeking its way out of the intermittent war zone.
OPEC+ Rubberstamps Another Production Hike. Seven core OPEC+ members have decided to hike their crude oil production targets for August 2026 by another 188,000 b/d, leaving just 188,000 b/d of voluntary cuts in place, presumably to be approved at the next meeting scheduled August 2.
US SPRs Collapse to 43-Year Low. According to data from the US Department of Energy, inventories of crude oil held in the US Strategic Petroleum Reserve dipped by another 6.2 million barrels in the week ending July 3 to reach 319.5 million barrels, the lowest level since April 1983.
Seoul Charges Oil Refiners with Price Collusion. The prosecutor's office of South Korea has formally charged four oil refiners – HD Hyundai Oilbank, SK Energy, S-Oil and GS Caltex – with colluding on fuel prices, claiming that their anti-competitive actions have caused harm of up to $17 billion.
IEA Flags Decline in Global Gas Demand. The International Energy Agency expects global natural gas consumption to fall by 0.5% in 2026, equivalent to a 20 bcm year-on-year drop and marking the third annual decline this decade after 2020 and 2022, as high LNG prices lead to demand destruction.
Germany Doubles Down on Gas Storage. The German government has decided to create a state-controlled emergency reserve of natural gas, planning to boost stored gas volumes by nearly 10% of current capacity in the country, requiring $1.7 billion with the injection expected in 2027-2028.
Iran Clears Floating Storage on US Waiver. The Trump administration's two-month waiver on Iranian crude and product exports has allowed Tehran to clear half of its existing floating storage, with idling barrels in Southeast Asia dropping to just 24 million barrels, down 50% from a month ago.
Qatari LNG Ship Is About to Explode. Al Rekayyat, an LNG carrier owned by QatarEnergy and targeted by (presumably) Iranian drones on June 7 some 7 nautical miles from the Omani coast, is reportedly at risk of exploding due to a fire in its engine room following the crew's evacuation.
