Brent Crude at $72, Down $15 for the Week, as Hormuz Reopens and Saudi Arabia Cuts August Asia Prices by $8

Brent crude settled at $72.12 per barrel on ICE on Friday, capping a decline of approximately $15 per barrel for the week. WTI crude settled at $69.46 per barrel on the CME, down 3.42 percent on the day. Four factors combined to drive the weekly sell-off: a partial Hormuz reopening, an expected Saudi Arabia August price cut, an Iraq OPEC exit threat, and China's crude imports tracking an eight-year low.

Hormuz Reopening Erased Months of Risk Premium

The Strait of Hormuz had been effectively closed to commercial tanker traffic since late February 2026, when US and Israeli military operations against Iran began. Before the conflict, approximately 15 million barrels per day transited the strait, representing roughly 30 percent of globally traded seaborne oil. The US and Iran subsequently signed a memorandum of understanding calling for the full reopening of the strait for at least 60 days without tolls.

The EIA projected in its April 2026 Short-Term Energy Outlook that Brent would average $96 per barrel for full-year 2026 and peak near $115 per barrel in the second quarter, based on assumptions that Hormuz would remain mostly closed. With Brent now at $72.12, the market has shed roughly $24 per barrel relative to the EIA's projected 2026 full-year average, reflecting the rapid collapse of the Hormuz risk premium. Goldman Sachs cut its Q4 2026 Brent forecast to $80 per barrel from $90 following the deal, and reduced its 2027 Brent average to $75 from $80, citing a one-month acceleration in the supply normalization timeline.

Despite resumed transits, physical traffic in the strait remains well below pre-war levels. More than 500 vessels are estimated to be waiting to exit the Gulf. The physical reopening and the commercial normalization of Hormuz traffic are two separate events, with full flow restoration expected to take weeks or months.

Saudi Aramco Set to Cut August Asia Official Selling Prices by Up to $8 Per Barrel

Saudi Arabia's national oil company, Saudi Aramco, is expected to reduce its August official selling prices for all four crude grades by $6.50 to $8.00 per barrel versus July, according to a Reuters survey of Asian refinery sources. Arab Light, Aramco's flagship grade, could be priced at a premium of $1.50 to $3.00 per barrel above the Oman and Dubai average benchmark, down from a $9.50 premium in July. The expected August cut would be among the largest single-month reductions in Arab Light pricing in recent years.

Arab Extra Light, Arab Medium, and Arab Heavy are all expected to receive similar cuts of $6.50 to $8.00 per barrel for August deliveries. At Saudi Arabia's approximate Asian export volume of 4 to 5 million barrels per day, a midpoint cut of $7.25 per barrel represents roughly $870 million to $1.1 billion per month in lower Asian sales revenue for Aramco. Saudi Aramco has not confirmed the August OSP; the company typically publishes official prices in the first week of each month.

Iraq Considers OPEC Exit Following UAE Departure in May

Iraq has indicated it will consider all options, including leaving OPEC, if its production quota is not significantly increased, according to sources with knowledge of Iraqi oil policy cited by Reuters. Iraq is OPEC's second-largest producer and has argued that its post-war reconstruction requirements justify a larger output allocation. The country's finances have come under pressure since late February, when the Iran conflict disrupted Iraq's Persian Gulf export routes.

The UAE left OPEC on May 1, 2026, after Abu Dhabi National Oil Company, known as ADNOC, sought a quota increase and was denied. Iraq's State Oil Marketing Organization, known as SOMO, is pursuing the same argument from a similar position: expanding production capacity constrained by an OPEC quota set before the Iran war. Both state companies have signaled that the economic cost of remaining in OPEC, with quotas calibrated to pre-expansion capacity levels, now outweighs the benefits of membership.

China Crude Imports Track Eight-Year Low as Gulf Supply Disrupted

China's crude oil imports are tracking toward a June average of approximately 6.4 million barrels per day, the weakest monthly figure since October 2016, according to Kpler vessel-tracking data. China imported an average of 11.6 million barrels per day in 2025, meaning the Iran conflict has effectively removed roughly 5.2 million barrels per day from China's import demand compared to its 2025 run rate. The country cut purchases after the conflict severed access to most Gulf crude volumes and instead drew down domestic inventories while cutting refinery run rates.

Bloomberg reported that June arrivals were on course to extend May's weakness rather than start a recovery, suggesting China's restocking has been measured rather than a sharp rebound. As Hormuz reopens and Middle Eastern crude flows resume, Chinese demand may recover toward its long-term average, providing a potential floor under prices. Goldman Sachs identified the pace of Chinese demand recovery as a key variable between its $80 per barrel Q4 Brent base case and a downside scenario placing Brent below $70 in Q4 2026 and below $60 in 2027.