Economic and financial fortune-tellers will base their predictions on the rather hectic week behind us as they assess what the future might hold. They will conclude that the deviation from the norm will persist. They might even go as far as to establish that this deviation is, in fact, the new norm.

It is not entirely clear how the first large-scale resource colonisation in more than 100 years, currently unfolding in Venezuela, will play out. Details of the agreement are sketchy, perhaps intentionally so. One cannot help but compare it with the two-page Memorandum of Understanding between the US and Iran in mid-June, which left the door—and not the Strait of Hormuz—wide open to violating it, with the consequences on full display over the past few months. By any measure, whatever the eventual impact of the Venezuelan deal, it will not be imminent.

This is bad news for the US administration, which seems reluctant to move toward any armistice with Iran. After launching economic warfare two weeks ago, military conflagration re-erupted between the adversaries over the weekend in the form of an exchange of fire at ships transiting the Strait of Hormuz. The effects of the perpetual conflict are reflected in record-high US diesel prices, while drivers also have to spend well over $4 for every gallon of gasoline they can afford to pump into their cars, just a few weeks ahead of the midterm elections.

Costly energy prices impact every segment of the economy; it is therefore no surprise that the FAO Food Price Index reached its highest level since November 2022. Inflation expectations are elevated, as evidenced by rising bond yields, putting the Fed chair, a Trump nominee, in an uncomfortable position. A rise in US interest rates at the next FOMC meeting on September 15–16 cannot be ruled out, particularly after better-than-anticipated nonfarm payroll data on Friday suggested a solid US labour market. Yet President Trump, seemingly unwilling to acknowledge economic realities, threatened to stop trading with major partners unless the Fed caves to his demands and lowers rates. Welcome efforts to initiate Ukrainian peace talks, even if they take place, will not come soon enough to have a meaningful impact on immediate inflationary concerns.

Still Tight

During wars, information does not flow smoothly from the affected region, and conflicts are not exactly characterised by transparency. This blatant axiom is naturally evident in the military stand-off between Iran and the US/Israel, which was initially expected to last 4–5 weeks and is now in its seventh month. The closure of the Strait of Hormuz in March foretold unprecedented disruption to oil supplies and exports out of the Persian Gulf, since this narrow waterway is responsible for 20 mbpd of oil flows in peacetime. While mitigating factors ensured that the worst-case scenario was avoided, the precise volume passing through the Strait is frequently the subject of fierce debate. Independent tanker trackers always report as objectively as possible, and, for this very reason, their estimates are usually on the low side, as the grey or very dark fleet is not taken into account. Politicians, on the other hand, do what they always do: muddy the waters and assume, estimate or believe that the amount of oil transiting the Strait is whatever fits their agenda.

Against this ambiguous backdrop, the next best indicator to look at is inventories in the major oil hubs around the world. While the figures are most plausibly accurate, the reports are published weekly, which is not exactly high-frequency data. Nonetheless, keeping in mind the lack of transparency in the Persian Gulf, it is imperative to revisit the issue regularly in order to form as realistic a view as possible of the impact the war is having on the oil balance. And the latest picture still offers no relief.

The loss of 3 mbpd of refining capacity in the region, which, at one point, cut the pre-conflict product export volume of around 3.3 mbpd in half, is conspicuously reflected in plummeting inventories in the US, Europe and Singapore. The current roundup indicates a slightly more dire picture than the last time we took stock a few weeks ago. In the US, distillate and gasoline inventories are still substantially below both year-ago levels and the five-year seasonal average. These deficits are 10% and 9% for distillates, and 6% and 4% for gasoline, respectively. On the US East Coast, distillate stockpiles, at 19.3 million bbls, are at their lowest level ever. Refinery utilisation at 98%, and above 100% in the Midwest, does not help alleviate the tightness, as most of the extra volume finds a home overseas, in Europe and Asia. Although net product exports of 6.4 mbpd last week were below the recent high of 7.5 mbpd registered at the beginning of June, they meaningfully exceeded last year’s average of 5.1 mbpd, a clear sign of how the US has become the world’s swing exporter as a result of the conflict it instigated.

In Europe, the ARA hub’s depleted product inventories are also a cause for concern. For the week ending September 4, and as reported by Dutch consultancy Insights Global, combined product stockpiles dropped to 4.15 million tonnes, the lowest level in 10 years. Current levels are 30% lower than during the corresponding week of 2025 and 22% below the seasonal norm. Jet stockpiles are particularly diminished. They are more than 50% below last year’s level and 36% below the five-year mean. Gasoline and gasoil inventories are registering deficits of around 20% in both categories.

The latest snapshot is only a tad less discouraging in Singapore. Total light and middle distillates, together with fuel oil stocks, are 23% below last year’s level and 13% below the five-year average, with light distillates particularly depressed (-26% and -24%, respectively). Add them together, and you will find that inventories across the major product categories are historically depleted.

Economic sanctions and military action are most effective when coupled with a political willingness to negotiate, something that neither party is currently willing to engage in. Once this attitude changes, and only then, can we reasonably expect some kind of reconciliation and a truce, which might lead to the replenishment of depleted oil inventories. Until then, tightness ought to prevail.

Overnight Pricing