The Wounded Dog. The Energy Report 07/17/2026

As the U.S. continues to dominate Iran militarily, Tehran is proving that a wounded dog is still a dangerous dog, and the Iranian regime proves that it has little regard for the lives of civilians. The latest evidence: a major escalation in which Iran struck civilians in Kuwait, taking out a power and water desalination plant and causing widespread damage to the station — a direct and serious threat to Kuwaiti civilians.
Kuwait says the strike hit one of its power generation and desalination stations, sparking a fire, damaging facilities, and knocking out a large number of electricity generation units.  Reports say that Firefighters brought the blaze under control and technical crews are now racing to restore the units and secure the site. Kuwaiti officials say six people were hurt in the broader wave of strikes on “vital facilities” across the country, including four members of the Kuwaiti armed forces.   Kuwait is now urging its people to ration electricity and water.
This isn’t Iran hitting American military assets anymore — this is Iran hitting the civilian backbone of a Gulf ally a despites measure that will lead to award talk at the next OPEC meeting.  At the same time, that strike opens the door for the United States to go after more of Iran’s own infrastructure, a hand Washington has so far withheld in hopes that Iran’s leadership finally comes to it’s senses and the table for a ceasefire. Of course this regime has never kept its word.
And it’s not just Kuwait. Iran reportedly warned yesterday that one of its favorite proxies, the Houthis, will shut the Bab el-Mandeb Strait if the U.S. keeps hitting Iranian infrastructure — missiles and drones are said to be staged near the waterway, with the group simply awaiting the order.
Reports say the Houthis have already seized a chemical tanker, a reminder that these aren’t idle threats yet at the same time they lack the firepower of even what’s left of Iran.
.That means two of the world’s most important oil chokepoints — Hormuz and Bab el-Mandeb — are now both in play at the same time, and that’s not something this market can shrug off but at the same time it’s not in full panic mode either.
Companies and countries aren’t waiting around to find out how it plays out. We’re seeing widespread use of workarounds to avoid the Strait of Hormuz, with many countries maxing out insurance policies and greenlighting new projects just to route around the strait in the near term.
Meanwhile, folks are fretting about Cushing, Oklahoma hitting tank bottoms  as crude stocks there have fallen below 20 million barrels, roughly a quarter of capacity, as record U.S. exports drain the hub to help backfill the barrels the Middle East can’t ship. Even so, the back end of the oil curve is still relatively calm — traders aren’t panicking about years two and three, even while the front of the market stays jumpy.
Crack spreads, though, are a different story — and they’re soaring, as we’ve been saying. President Trump and the US military has done an amazing job of calming the crude oil market even with this war raging.  Still refining capacity is stained as the as green energy policies have straggled them and the Ukraine keeps hitting Russian where it hurts in the refining sector.
U.S. benchmark crude is hovering around $80 a barrel, about 18% above where it sat before this Iran war began but dramatically lower than the $119 a barrel the first night of the invasion. Gasoline has  hotter p 32% to $3.94 a gallon, according to energy data firm OPIS, from today’s Wall Street Journal with AAA putting the national average in that same $3.94–$3.98 range.
Diesel is running around $5.01 a gallon, though it’s been sticky and volatile, with some regional prints closer to $4.80–$4.90. Remember, those are national blends — California is paying a lot more,  because of stupid policies that are killing the poor and middle class in that state and the Gulf Coast and Midwest a fair bit less.
Gasoline crack spreads are averaging about 90 cents a gallon so far this month, the highest level in four years, according to data from Novi Labs as reported by WSJ. The 3:2:1 crack — the blended benchmark that mixes gasoline and diesel against crude — has been flirting with record territory too, recently representing somewhere between 70% and 75% of the value of crude itself in some stretches, compared with roughly 27% earlier this year. Refiners are making a killing on that spread even while crude sits comparatively calm.
Why is this happening? Simple — the fuel market never had the shock absorbers that crude did. On top of that green energy policies made it almost impossible to expand refining capacity or invest in new refiners’ countries that demonized oil companies from wanting to expand are paying the price.
And that matters going forward, because even if we get another ceasefire and oil starts flowing normally again, gasoline and diesel prices are likely to stay elevated for a lot longer than crude does.
Crude’s surprise cushion has been China. Beijing slashed its imports to just 5.7 million barrels a day in June, according to the International Energy Agency’s July oil market report, down from around 11 million barrels a day before this war started. But China hasn’t extended that same courtesy to the refined-products market — it’s normally a net exporter of gasoline and diesel, and it has pulled those exports back hard since the war began, according to Rob Smith, S&P Global’s global head of fuel retail. Chinese refinery throughput fell to a six-year low in May, tracking right alongside that drop in crude imports.
The Journal points out that governments have also leaned on strategic reserves to prop up crude supply — IEA members released 2.4 million barrels a day in May and another 1.5 million barrels a day in June. But almost all of that was crude oil, not refined fuel, so it hasn’t done much to ease the gasoline and diesel squeeze.
The real problem is refining capacity, and it’s been gutted across two of the world’s biggest fuel-export regions. Global refinery runs were 5.1 million barrels a day lower in the second quarter compared with a year ago, per the IEA. Middle Eastern refiners are bottlenecked by the Hormuz disruptions and have taken direct hits from Iranian strikes — they processed just 7.6 million barrels a day in the second quarter, a fifth less than in 2025. Russia, the world’s second-largest fuel exporter, has lost more than a quarter of its refining capacity to Ukrainian drone strikes and just imposed a short-term export ban on diesel. Moscow is now buying gasoline from India and Belarus, a fuel it normally never has to import.
That Russian diesel ban could ripple further than people realize. If diesel prices keep climbing globally, U.S. refiners may start shifting their production mix toward diesel and away from gasoline unless gasoline prices rise enough to keep pace — that’s the read from energy economist Philip Verleger, and it’s a dynamic worth watching closely.
Inventories tell the same tight story. Global gasoline stocks were 3% below the five-year average as of June, and S&P Global expects that gap to widen to 4% this month. Here in the U.S., gasoline inventory is running about 8% below the five-year seasonal average.
Despite all that tightness, global gasoline demand has stayed surprisingly resilient, largely because governments are cushioning their people from the pain. The IEA counts 92 countries that have rolled out some kind of consumer relief — fuel tax cuts, subsidies, price caps, or other support — according to an analysis from Pew Research Center.
Back home, part of our own gasoline price problem is homegrown. Back in March, the Trump administration raised the biofuel blending quotas that U.S. refiners must hit for 2026 and 2027 to record levels. The trouble is, most U.S. gasoline is already blended up to the standard 10% ethanol cap, so refiners can’t just add more biofuel to comply — they have to go out and buy compliance credits instead, and those credits have gotten a lot more expensive as blending targets went up. Novi Labs refined-fuels analyst Robert Auers estimates that compliance costs are now baked into gasoline prices to the tune of 14 cents a gallon in July, up from just 5 cents a year ago.
The Journal says that we should not expect relief at the pump anytime soon, even if the Strait of Hormuz reopens tomorrow. Shut-in crude production can be switched back on fast. Refining capacity can’t — it takes real time to bring damaged or idled units back online, according to S&P Global’s Smith. There’s also a logistics problem baked into the physical structure of this trade: crude moves in giant tankers that can carry up to 2 million barrels a load, while the ships that carry finished fuels typically carry only tens of thousands of barrels. As Smith put it, it simply takes longer for that fuel supply to get out of the Middle East because it’s moving in much smaller vessels.
Trump does have a couple of levers he could pull to take some pressure off pump prices — suspending the ethanol and biodiesel blending mandates, or suspending the federal gas tax, for starters. But the bigger determinant of what you pay at the pump is still the global market, and that market doesn’t have much cushion left. Unlike crude, the U.S. doesn’t sit on a big strategic stockpile of gasoline or diesel. So for drivers — and for the broader U.S. economy — there’s no easy way out of high gas prices right now. Keep watching Hormuz, keep watching Bab el-Mandeb, and keep watching those crack spreads, because that’s where this story is actually being written.
Look, even with supplies running tighter than expected, the market is showing remarkable resilience. The ramp-up in tensions between the US and Iran slammed Strait of Hormuz tanker traffic hard—just as you’d expect—but it will take time for those shipments to fully ramp back up.
That said, don’t get caught sleeping: once that Strait reopens, oil prices could drop dramatically, and fast. Remember last time? Everyone was warning it would take months for the pressure to ease. The market proved them wrong in a hurry. Sometimes you’ve got to listen to what the tape is telling you, not just the experts’ warnings. Blend the fundamentals with the price action.
t’s start with storage, because the number’s actually pretty solid. EIA’s latest report, week ending July 10, showed a 41 Bcf injection, which puts total working gas at 3,024 Bcf. That’s 181 Bcf fatter than the five-year average of 2,843 Bcf, though we’re still running about 21 Bcf behind where we sat this time last year. The week before that was even better — a 61 Bcf build for the week ending July 3, which blew past the 49 Bcf the market was looking for and beat both last year’s 53 Bcf injection and the five-year average of 51 Bcf. Bottom line: we’re refilling the tank at a healthy clip and sitting comfortably above normal, even if last year’s got a slight edge on us.
Now here’s why that cushion matters — the heat. We’ve had heat domes parking over the central and eastern US since the Fourth of July weekend, another one rolled through around July 10, and NOAA’s 8-to-14-day outlook says above-normal temperatures are likely across most of the country going forward. That’s showing up directly in the burn: gas demand for power generation hit 45.6 Bcf a day for the week ending July 7, better than 15% higher than the week before, as everybody’s air conditioner kicked into overdrive. For the summer overall, EIA sees the power sector averaging 42.2 Bcf a day, a touch above last summer’s pace. If you want to stay a step ahead of these heat domes before they show up in the demand numbers, go download the FOX Weather app — that’s exactly the kind of forecast tool that’ll keep you ahead of the market instead of chasing it.
On the export side, we’ve got real problems at Freeport LNG. The plant had already cut back to around 1.2 Bcf a day starting July 10 for a big scheduled turnaround with two of its three trains offline, and then Train 3 tripped separately on a pretreatment issue. Then on July 15, the whole facility went dark — all three trains tripped together after a power feed interruption — and Freeport says the maintenance work now isn’t expected to wrap until late August. That’s not the only one, either: Sabine Pass throttled back intake on July 7 and 8 for scheduled work on the Creole Trail pipeline, and Corpus Christi and Calcasieu Pass both saw lighter feedgas intake last week too. Add it all up and total US LNG feedgas demand has been down sharply, which means less gas heading out the door to the rest of the world right now.
So here’s where we sit: a comfortable storage cushion, real summer heat demand pulling hard on the power burn, and now a chunk of our LNG export capacity offline for weeks. That’s a mixed bag that can cut either way on price, so this is exactly the kind of stretch where you want to be watching Thursday’s storage number, keeping an eye on that FOX Weather forecast, and watching how fast Freeport gets those trains back online. Aso stay tuned to the Fox Business Network and call today to open your account at 888-264-5665or email pflynn@pricegroup.com.

 

Thanks,

Phil Flynn

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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