Morning Highlights: Oil Falls Below $70 as Massive Inventory Build Collides with Iran Rush to Export; Saudi Arabia Prepares Contingency Plan

Thursday, February 26, 2026

MARKET SNAPSHOT

Oil pulled back sharply as the largest U.S. crude inventory build in three years and weakness in the North Sea physical market weighed on prices ahead of today's critical U.S.-Iran talks in Geneva. Brent crude fell 87 cents to $69.98/bbl by 7:00 AM EST, slipping below $70 for the first time this week. WTI dropped $1.03 to $64.39/bbl. Oil futures are still up about 15% in 2026, with the Iran conflict premium offsetting oversupply expectations.

Wednesday's EIA data showing a 16 million barrel crude build, the largest in three years, is finally forcing the market to reconcile geopolitical premium with fundamental reality. Today's third round of U.S.-Iran nuclear talks in Geneva between envoys Witkoff/Kushner and the Iranian delegation will determine whether prices find a floor or break lower.

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TOP DEVELOPMENTS

EIA Confirms Massive 16 Million Barrel Crude Build

U.S. crude inventories rose by 16 million barrels last week, the most in three years, the EIA confirmed Wednesday. The build was even larger than the API's 11.43M barrel estimate. As we detailed yesterday, the build was driven by a 2.4% drop in refinery utilization (runs down 416K bpd), falling exports (-277K bpd), and rising imports (+135K bpd), almost entirely concentrated in PADD 3 (Gulf Coast, +13.9M).

This is now impossible for the market to ignore. Two consecutive weeks of enormous crude builds while Brent trades near $70+ perfectly illustrates the disconnect between geopolitical pricing and physical reality. The surplus forecasts from Goldman (2.3M bpd), Morgan Stanley, and the IEA are materializing in actual inventory data.

Iran Tripling Crude Export Loadings Ahead of Potential Conflict

Iran has tripled the rate of tanker loadings in recent days as Tehran rushes to get oil out of the Gulf ahead of potential escalation. Crude exports from Kharg Island soared to 20.1 million barrels during February 15-20, equivalent to over 3 million bpd, more than double Iran's typical export levels in recent years, according to Kpler data cited by Bloomberg.

This is the clearest signal yet that Tehran is bracing for military intervention. Iran has done this before: moving tankers away from Kharg Island during October 2024 Israeli strike fears and during the June 2025 conflict with Israel. The fact that they're tripling loadings, not just repositioning vessels, suggests they're trying to monetize as many barrels as possible before a potential disruption to Kharg, which handles 90% of Iranian crude exports. Paradoxically, this rush to export adds short-term supply to the market even as it signals higher long-term disruption risk.

Saudi Arabia Preparing Contingency Production Plan

Saudi Arabia is boosting oil production and exports in a contingency plan should any U.S. strike on Iran disrupt Middle East supplies, two sources familiar with the plan told Reuters. Separately, OPEC+ is likely to consider raising output by 137,000 bpd for April, three sources said, as the group prepares for peak summer demand and takes advantage of the price boost from U.S.-Iran tensions.

Saudi Arabia preparing to backfill Iranian supply disruption is significant on two levels. First, it confirms Riyadh views military conflict as a realistic scenario, not just rhetoric. Second, it means additional Saudi barrels are coming regardless of outcome: if conflict happens, they backfill lost Iranian supply; if a deal happens, they're already ramping into an oversupplied market. The 137K bpd OPEC+ increase for April, while modest, adds to the bearish supply trajectory.

North Sea Physical Market Weakness Weighing on Brent

UBS analyst Giovanni Staunovo flagged that weakness in the North Sea physical market, which underpins the Brent futures contract, is weighing on prices. This aligns with Morgan Stanley's earlier observation that softer prompt spreads and weaker physical differentials show pricing is based on geopolitical concerns rather than actual lack of oil.

ING Quantifies the Risk Premium at $10/bbl

ING analysts noted that a constructive resolution from today's talks would likely prompt the market to gradually unwind as much as a $10/bbl risk premium currently priced in. That's even higher than Barclays' earlier $3-4/bbl estimate and Goldman's $6 breakdown, reflecting how the premium has grown as tensions escalated from tweets to State of the Union speeches to military positioning.

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BOTTOM LINE

Today is the day. Brent breaking below $70 on the 16 million barrel build heading into the Geneva talks sets up the most consequential session for oil markets this year. The fundamental case for lower prices has never been stronger: the largest U.S. crude build in three years, North Sea physical weakness undermining the Brent contract, OPEC+ preparing to add 137K bpd in April, and Saudi Arabia ramping production regardless of outcome. ING now puts the risk premium at $10/bbl, meaning fair value without Iran risk is around $60 Brent, right in line with Goldman's revised Q4 target.

Iran's behavior tells you everything about where Tehran thinks this is heading. Tripling export loadings from Kharg Island to 3M+ bpd is not what a country expecting a diplomatic breakthrough does. It's what a country preparing for its primary export terminal to come under threat does. The parallel with October 2024 (Israeli strike fears) and June 2025 (Israel conflict) is exact. Iran is simultaneously saying a deal is "within reach" while rushing to export every barrel it can and buying Chinese anti-ship missiles. Actions over words.

Saudi Arabia's contingency plan is the most underreported story today. Riyadh is preparing to backfill Iranian supply, which means they're taking military conflict seriously enough to operationalize a response. Combined with the OPEC+ 137K bpd April increase, the supply side is loosening from every direction.

The range of outcomes from today's talks is enormous. ING's $10/bbl premium unwind on a constructive resolution would take Brent toward $60. A breakdown with Trump following through on military action within his stated timeline could send Brent to $80+, though Iran's rush to export means even a Kharg Island disruption would be partially pre-empted by the barrels already loaded. SEB's $60-65 fair value without Iran risk, Goldman's $60 Q4 target, and Morgan Stanley's $62.50 Q2 forecast all point the same direction once the premium fades. The fundamentals are screaming lower. It's a question of when, not if, the geopolitics let them through. Watch Geneva.