Global oil benchmark Brent
crude has rallied this month but stayed below $100 a
barrel despite recent escalation in the U.S.-Iran conflict that
has disrupted Gulf exports from the Strait of Hormuz and the Red
Sea.
Crude oil shipments from Middle East producers are at about
11 million barrels per day (bpd) now, from 18 million bpd before
the Iran war began seven months ago, according to Argus.
Here are some of the factors driving oil prices:
SIGNIFICANT VOLUMES HAVE BEEN ABLE TO FLOW THROUGH HORMUZ
In the week before fighting erupted again on August 30,
roughly 8 million to 9 million bpd had been flowing through
Hormuz, double the previous week’s volume, said Rystad Energy’s
Chief Economist Claudio Galimberti.
While flows have since fallen to below 2 million bpd, the
daily moving average is still around 4 million to 5 million
barrels which puts Brent at a “fair” price of $95, Galimberti
said. Industry estimates put daily exports between 6 million and
8 million barrels.
There has been no visible very large crude carrier exiting
the strait since September 2, Kpler data showed on Monday.
During the interim U.S.-Iran peace deal in July, Hormuz
exports touched pre-war levels of 16 million bpd.
GULF EXPORTERS ARE USING ALTERNATIVE ROUTES AND MEANS
Gulf producers have found alternative routes and are
expected to continue sending cargoes for ship-to-ship transfers
outside of Hormuz, mitigating some of the earlier shortfall.
Saudi Aramco resumed loadings from its Ras Tanura port
inside the Gulf in August, although its exports from Yanbu in
the Red Sea remain under pressure from a naval blockade by the
Iran-aligned Yemeni Houthis. Yanbu exports hit a six-month low
of 1.429 million bpd in August, from an average of 3.9 million
bpd in the previous three months, provisional Kpler data showed.
Exports from the alternative port of Egypt’s Sidi Kerir hit
2.139 million bpd in August, more than double June volumes.
Exports from No. 2 OPEC producer Iraq rebounded in August to
around 2.34 million bpd.
Shipments from the United Arab Emirates hovered around 2.9
million bpd in August and July after hitting a record in June,
Kpler data showed.
Kuwaiti crude exports have recovered to about 1 million bpd
in July and August.
However, Iran’s oil exports have fallen sharply due to the
U.S. blockade.
OTHER PRODUCERS ARE STEPPING UP
Non-OPEC producers including the U.S., Canada and Guyana are
set to increase output by a combined 1.4 million bpd this year,
according to Jarand Rystad, founder of Rystad Energy, partly
filling the shortfall.
Meanwhile, Russian crude exports held steady at about 5.5
million bpd in July and August, down from the 6.4 million bpd
peak in June, but still 23% higher than February as processing
at Russian refineries has fallen due to damage to Russian plants
from Ukrainian attacks, Kpler data showed.
However, Russia has downgraded its 2026 oil output forecast
to a 17-year low, which may reduce its exports.
DEMAND DESTRUCTION IS SIGNIFICANT
Demand destruction in petrochemicals and transportation
fuels remains significant in the third quarter at 3.5 million
bpd, versus 4.5 million bpd in the second quarter, with China
accounting for more than half of that due to rising transport
electrification and coal-based chemicals, Rystad said.
Top importer China, dubbed the “new demand OPEC” for its
market influence, slashed seaborne crude shipments to 7 million
bpd in July and August, from over 11 million bpd in February.
Beijing’s vast reserves, estimated by Kpler at 1.7 billion
barrels, have also given markets comfort.
PHYSICAL MARKETS TELL A DIFFERENT STORY
Spot premiums have rebounded to April levels with Dubai and
Oman at $19 to $20 a barrel above Dubai quotes for cargoes
loading in November, Reuters data showed. Oman futures were at
$104.54 a barrel on Monday while cash Dubai traded at $105.10 a
barrel.
“At the moment, it’s telling us that physically things are
incredibly tight,” said David Fyfe, chief economist at Argus.
“We’ve already got prices substantially above $100 a barrel
and even more important, you’ve got a diesel market that is
screaming shortage.”
The recent U.S.-Iran escalation is expected to curb Gulf
exports while demand rises as refiners ramp output of diesel,
which has hit a record high price in the U.S.
ANALYSTS LIFT FORECASTS
Several banks have raised their Brent price forecasts,
including Morgan Stanley which expects prices averaging $100 a
barrel in the fourth quarter.
Goldman Sachs raised its Brent and West Texas Intermediate
forecasts by $5 a barrel for December 2026 and 2027, citing an
expectation that Middle East shipping disruptions will persist
into next year. It now forecasts Brent at $85 a barrel and WTI
at $80 for December 2026, and 2027 prices at $80 and $75 a
barrel, respectively.