Navigating the current political and economic waters is a gnarly challenge, and even this axiom sounds like an understatement. There are two military wars, with all their twists and turns, that markets are forced to cope with. In addition, economic and trade wars, together with the battle against inflation, add several more layers of uncertainty to forming a reliable view of the state of the world. Yet investors are doing what they can to interpret developments as they unfold, which, most plausibly, means reacting to headlines. For last month, the net result of this bellicose environment was a wobble in equity markets and a more-than-decent uptick in oil prices, led by the middle of the barrel, particularly ICE Gasoil, which returned close to 50% in July, including the monthly rollover.

After SCOTUS struck down the reciprocal trade tariffs in February introduced under the International Emergency Economic Powers Act, the interim measures expired on July 24. On the same day, using the Section 301 framework and citing forced labour, the Administration reimposed import tariffs ranging from 10% to 12.5% on 60 trading partners, including China and the EU, with Brazil and Canada facing even harsher penalties of 25% (for unfair trade practices) and 50% (for unequal treatment and, possibly, wildfires). Clearly, the US is determined to impose these punitive taxes on its trading partners in an effort to mitigate trade imbalances, notwithstanding their ineffectiveness and inflationary side effects.

Inflationary pressure was, indeed, in focus last month, as the ECB, the Fed, and the BoE all decided to keep interest rates unchanged. The ECB is widely expected to raise the cost of borrowing in September after inflation surprised to the upside in July. The Fed could follow suit. It is now the bond market that offers the real "forward guidance," and with the 30-year Treasury yield at its highest level in 19 years, the central bank's room for manoeuvre is severely constrained. The BoE saw no need to intervene for the fifth consecutive meeting either, but it stands ready to act should developments in the Middle East warrant it. It is therefore no surprise that global equities remained on the defensive, also weighed down by the technology sector, as China's largest chipmaker enjoyed a stellar IPO and Moonshot AI is emerging as a formidable rival to Western AI companies.

Oil kept dancing to the tune of geopolitics throughout July. The key themes remain uncertainty and plunging oil inventories. Ukrainian drone strikes have forced Russia not only to extend its ban on diesel and gasoline exports until the end of January 2027 but also to rely on ideological allies to ensure domestic supply. Ukraine has visibly had the upper hand in the war, but Donald Trump's abrupt reversal on allowing Kyiv to produce Patriot interceptor missiles has dealt a considerable blow to Volodymyr Zelenskyy's country. The conflict, together with all its consequences for the oil balance, including impeded Kazakh oil exports, is far from over.

So is the Middle East crisis. Not only did the conflagration escalate after the fragile ceasefire came to a predictable end, but it also expanded from the Persian Gulf to the Red Sea, as the Yemeni Houthis announced a naval blockade of Saudi Arabia. While traffic periodically resumes through the Strait of Hormuz, the Bab el-Mandeb Strait, and the Suez Canal, it is impossible to foresee when the situation will normalise or deteriorate further. What is conspicuous is the trend in oil inventories, adversely affected by both the Middle East conflict and the war in Ukraine.

US distillate inventories have rebounded by 10% from the 100-million-barrel low registered in May, yet the major product categories, and consequently total commercial stockpiles, remain considerably lower than a year ago and well below the five-year seasonal average. The same applies to product inventories in Northwest Europe. Although they posted a modest week-on-week increase, the deficits relative to both last year and the long-term average remain ominous, particularly for fuel oil and gasoil. Singapore's refined product inventories are the third lowest since October 2024, with middle distillate stocks nearly 10% below both the year-ago level and the five-year average. This latest snapshot hardly paints a picture of an abundance of black gold.

A Light-Hearted Glance Forward

The new week started on the back foot, following another spectacular—but hardly surprising—reversal in US policy towards Iran. Just a day after escalating threats to resume strikes against Iranian energy infrastructure, the US President, in what appears to be yet another tacit admission of the epic failure the conflict has become, called off the planned attacks at the request of Gulf allies, "subject to being able to rapidly make a DEAL," while OPEC+ decided to increase production by a further 188,000 bpd from September, thus overturning the voluntary cuts in full. A DEAL, despite the weekend’s developments, however, remains as elusive, and the medium-term direction of oil prices as uncertain, as ever.

Given the persistent depletion of global oil inventories, we would expect firmer prices during August—unless, of course, oil flows in the region recover meaningfully and sustainably, while also keeping a watchful eye on signs of weakening demand. Under the current VVV trading conditions (volatile, vicious, and violent), the odds of getting it embarrassingly wrong are reasonably high. We therefore thought we would turn to a panel of impartial, albeit soulless, observers for their views on the direction of oil prices this month.

ChatGPT, Copilot, DeepSeek, and Claude were all asked the same question last night: Where is Brent heading in August? (This is only the second—and last—time, after asking ChatGPT to write a poem about oil a year ago, that we have allowed AI to contribute to this report.) Their answers are reproduced below, and the inaugural—and undoubtedly final—PVM Forecasting Prize goes, hands down, to Claude. Honestly, humans can’t make this stuff up.

ChatGPT
Possible scenarios

Scenario                                            Probability                    Brent Outlook

Continued tension without                  ~50%                           $95-$105/bbl
major disruption

Significant disruption to Middle         ~30%                           $110-$125/bbl with temporary
East exports or shipping                                                       spikes above that possible

Diplomatic breakthrough or               ~20%                           $85-$95/bbl
ceasefire
 
Copilot
Brent is expected to fall sharply in August, with major forecasters projecting a move toward ~$80 per barrel, down from the elevated $100-110 levels seen in May-July.
 
What the numbers imply for August:
 
Scenario                      Price Range     Key Drivers                                         Risk Level
Bearish                        $70-78             Hormuz reopens early, supply
                                                           rebounds, weak demand                     Medium
 
Base-Case                   $80-90             Partial normalisation, inventory
                                                           draws, moderate risk premium            High
 
Bullish                         $95-120           Renewed conflict, tanker attacks,
                                                           delayed reopening                               Low, but volatile
 
Deepseek
Conclusion: A Market at a Crossroads

In summary, Brent crude oil in August is likely to be defined by a tug-of-war.
1.      Geopolitical Escalation (Bullish): If the Strait of Hormuz situation worsens or fails to find a resolution, prices could easily spike into the $95-$105+ range or higher.
 
2.      De-escalation and Supply Surge (Bearish): If a diplomatic solution is found and supply routes normalise alongside increased OPEC+ output, prices could correct significantly towards the $70-$80 level.

The market's direction ultimately hinges on geopolitics. A resolution before August 16 could trigger a sharp sell-off, while further conflict would likely drive prices substantially higher.
 
Claude
Brent is heading to Switzerland in August.
 

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