LONDON: Global oil benchmark Brent crude has rallied this month but remains below the $100-a-barrel mark, despite escalating tensions in the US-Iran conflict and disruptions to energy shipments through the Strait of Hormuz and the Red Sea.
Crude shipments from Middle Eastern producers have fallen to around 11 million barrels per day (bpd) from approximately 18m bpd before the US-Israeli war on Iran began seven months ago, according to Argus.
Despite the sharp reduction, several factors have prevented oil prices from rising further.
Significant volumes still moving through Hormuz
A substantial volume of crude continues to pass through the Strait of Hormuz. In the week before fighting resumed on August 30, around 8m to 9m bpd moved through the waterway, according to Rystad Energy.
Although flows have since dropped below 2m bpd, the daily moving average remains around 4m to 5m barrels, which Rystad estimates would correspond to a Brent price of about $95 a barrel.
Industry estimates put current daily exports through the strait at between 6m and 8m barrels. Kpler data showed no very large crude carrier exiting Hormuz after September 2.
During a temporary US-Iran peace deal in July, Hormuz exports briefly returned to pre-war levels of around 16m bpd, demonstrating the market’s capacity to recover quickly when tensions ease.
Gulf producers turn to alternative routes
Gulf oil producers are increasingly relying on alternative export routes and are expected to continue using ship-to-ship transfers outside the Strait of Hormuz to reduce supply disruptions.
Saudi Aramco resumed crude loadings from Ras Tanura in August, although exports from Yanbu on the Red Sea remained under pressure because of a naval blockade by Yemen’s Houthi forces.
Yanbu exports fell to a six-month low of 1.43m bpd in August, compared with an average of 3.9m bpd during the previous three months.
Meanwhile, exports from Egypt’s Sidi Kerir terminal rose to 2.14m bpd in August, more than double June levels.
Iraq, the second-largest Opec producer, also saw exports recover to around 2.34m bpd in August. UAE shipments remained near 2.9m bpd, while Kuwait’s crude exports recovered to approximately 1m bpd during July and August.
Iran, however, has suffered a sharp decline in oil exports as a result of the US blockade.
Other producers help offset the shortfall
Higher production from non-Opec producers is also helping to cushion the supply shock. The United States, Canada and Guyana are expected to increase combined output by around 1.4m bpd this year, according to Rystad Energy.
Russian crude exports remained relatively stable at around 5.5m bpd in July and August. Although below the June peak of 6.4m bpd, the figure remained about 23% higher than February levels as damage to Russian refineries from Ukrainian attacks reduced domestic processing.
Russia, however, has lowered its 2026 oil production forecast to a 17-year low, potentially limiting future exports.
Weak demand is limiting price gains
A significant decline in oil demand is another factor preventing prices from rising sharply.
Rystad estimates demand destruction in petrochemicals and transportation fuels at around 3.5m bpd in the third quarter, compared with 4.5m bpd in the second quarter.
China accounts for more than half of this decline, driven by growing transport electrification and increased use of coal-based chemicals.
China, the world’s largest oil importer, reduced seaborne crude imports to around 7m bpd in July and August, down from more than 11m bpd in February.
The country’s substantial oil reserves, estimated by Kpler at around 1.17 billion barrels, have also provided some reassurance to global markets.
Physical oil market signals tighter supplies
While benchmark futures remain below $100, physical oil markets are showing considerably greater tightness.
Spot premiums have returned to levels last seen in April, with Dubai and Oman crude trading at premiums of around $19-$20 a barrel above Dubai quotes for November-loading cargoes.
Oman futures were trading at $104.54 a barrel, while cash Dubai stood at $105.10.
Argus chief economist David Fyfe said the physical market indicates that supplies are already extremely tight, with diesel markets showing particularly strong signs of shortages.
The latest escalation in the US-Iran conflict is expected to further constrain Gulf exports at a time when refiners are increasing diesel production to meet demand. US diesel prices have already reached record levels.
Analysts raise oil price forecasts
Several major financial institutions have raised their oil price forecasts amid expectations that Middle East supply disruptions could persist.
Morgan Stanley expects Brent crude to average around $100 a barrel in the fourth quarter.
Goldman Sachs has also raised its Brent and West Texas Intermediate forecasts by $5 a barrel for December 2026 and 2027. The bank now expects Brent to reach $85 a barrel and WTI $80 by December 2026, while its 2027 forecasts stand at $80 for Brent and $75 for WTI.
Despite the severe disruption to Middle Eastern oil flows, the combination of continued alternative exports, additional production from other suppliers, high inventories and weaker demand has so far prevented Brent from sustaining prices above the psychologically important $100-a-barrel threshold.
By Reuters
