Oil markets are poised for a turbulent start to the trading week as geopolitical tensions between the United States and Iran escalated dramatically over the weekend. U.S. and Iranian forces exchanged major missile and drone attacks, with Tehran claiming the Strait of Hormuz—a critical chokepoint for global oil shipments—was closed. Washington, however, has insisted that commercial shipping continues to navigate the waterway. The U.S. Central Command reported striking 140 Iranian military positions on Saturday in retaliation for attacks on merchant vessels.
Brent crude futures closed at $76.01 per barrel on Friday, marking a 5.4% gain for the week, while U.S. West Texas Intermediate settled at $71.41, up 4.0%. The real action, however, has been in refined products. U.S. ultra-low sulfur diesel futures surged 11% on Wednesday to $154 per barrel, creating an $80 premium over WTI. This crack spread—the margin refiners earn from selling diesel and heating oil minus crude input costs—has widened dramatically as Russian diesel and gasoil shipments plummeted to just 234,000 barrels per day in the first ten days of July, down from 817,000 bpd a year earlier.
“Every barrel Russia now redirects to Latin America is a barrel not going to Europe,” noted Qilin Tam of FGE NexantECA, underscoring the supply shift that is tightening diesel markets globally. The S&P 500 Energy index rose 3.2% since July 2, tracking crude gains but not fully reflecting the diesel surge.
Refiner stocks had a mixed session on Friday. Valero Energy (NYSE:VLO) closed at $280.69, down 0.2%, while Marathon Petroleum (NYSE:MPC) edged up 0.1% to $283.74. Phillips 66 (NYSE:PSX) finished at $188.36, losing 0.8%. The divergent moves set the stage for Monday as traders weigh whether the fresh conflict will further boost refinery profits or stoke inflation and demand concerns.
International Energy Agency data sheds light on why crude and fuel prices are diverging. Projections show an oil deficit of 860,000 barrels per day in 2026, swinging to a 4.62 million bpd surplus in 2027 if Hormuz shipping resumes—a net swing of 5.48 million bpd. June inventories rose by 21 million barrels, but this was driven by a 117-million-barrel jump in “oil on water” shipments, masking a 96-million-barrel draw from onshore tanks. Exports of refined products from the Gulf remain below half their pre-war pace, while crude shipments have recovered to about 75%.
“The market is ready, willing and able to jump on good news,” said John Kilduff of Again Capital on Friday, though Sunday’s military action pushed sentiment in the opposite direction. Traders are now bracing for a series of key releases this week, starting with OPEC’s monthly oil market report on Monday—the first since the IEA forecast a shift from shortage to surplus. Later, U.S. inflation data, China’s economic activity figures, and weekly petroleum inventory numbers will test market direction.
The bullish setup could quickly unwind. President Donald Trump stated on Sunday that the Strait of Hormuz remains open for commercial shipping. If tanker traffic normalizes or diplomatic talks resume, a portion of Brent’s war premium may evaporate. Additionally, high diesel and gasoline prices risk curbing demand, potentially shrinking wide refinery margins and undermining last week’s crude rally.
Eni CEO Claudio Descalzi said Saturday that tapping emergency stockpiles has helped cap crude prices, but warned that these reserves are finite. He called for enhanced energy security and a more diversified mix of supply sources and routes. For refiners, the order of recovery matters: crude flows can bounce back faster than refining capacity, meaning margins could stay elevated even if Brent slips.
Monday’s trading will hinge on missile and shipping headlines, but the longer-term trend depends on fuel stockpiles and refinery utilization. If U.S. distillates draw down again while crude inventories rise, the market will keep its focus on diesel’s $80 premium. A significant build in refined products, however, could swing attention back to Brent.
