Brent crude prices have remained above the $100‑per‑barrel threshold for most of the past month, even though recent tanker‑tracking data and investment‑bank reports indicate that crude flows through the Strait of Hormuz have recovered to, and in some cases surpassed, pre‑war levels.
High Shipping Costs Keep Prices Elevated
Returning to pre‑war flow volumes does not equate to a return to normal market conditions. Freight rates for moving oil out of the Middle East have surged to record highs, and war‑risk premiums on tankers have risen sharply as attacks in the Strait of Hormuz continue. Gulf producers have been forced to use alternative routes that are less efficient, cost more for buyers, and add weeks to the time needed to deliver crude to refineries.
Refiners are attempting to maintain high processing rates in order to capture record‑high refining margins, especially for diesel, which the article describes as the most stressed barrel of oil. The combination of elevated shipping costs and the need to keep refineries running at capacity adds upward pressure on the front‑month Brent futures price.
Geopolitical Risks and Inventory Shortfalls
Fuel exports from the Middle East remain limited, while Russian diesel shipments are effectively non‑existent because Moscow has banned diesel exports. China is again protecting its domestic supply and curbing fuel flows overseas. At the same time, global oil inventories have fallen sharply this year. The drawdown in crude and fuel stocks that provided relief after the peak of Strait of Hormuz disruptions in April and May has left inventories so thin that they may be unable to absorb another escalation in the U.S.–Iran conflict.
The geopolitical landscape is the biggest unknown for oil prices moving forward. The war shows no signs of ending soon, and markets are wary of fresh escalations either before or after the U.S. midterm elections in early November. Such events could threaten the recovery of oil flows from the Strait of Hormuz, a risk highlighted by a related Gulf‑storm threat that could endanger three million barrels per day of refining capacity.
With depleted inventory cushions, the market continues to price in an elevated war‑risk premium, keeping Brent above $100 per barrel since early September. Ole Hansen, Head of Commodity Strategy at Saxo Bank, said a sustained move lower in Brent would require broader normalisation, including improved crude supply, recovery of product exports and reduced political and financial shipping risks.
Policy Moves and Market Reactions
On Friday, the G7 announced the release of 100 million barrels of crude oil and diesel stocks. After an initial knee‑jerk reaction that pushed prices lower, Brent remained above $100 per barrel in Asian trade on Tuesday. Bjarne Schieldrop, chief commodities analyst at SEB Bank, noted that the market is uncertain how many of the 100 million barrels are truly “new” versus the remainder of the International Energy Agency’s earlier pledge to release 425 million barrels, some of which were never actually released.
Schieldrop also pointed out a price divergence: while front‑month Brent futures hover around $100 per barrel, North Sea crudes such as Oseberg and Fortis trade at about $140 per barrel. He listed several upside risks that could keep Brent at current levels, including the possibility of fresh Iranian attacks before the U.S. midterms, a U.S. response after the elections, the ability of the Strait of Hormuz to stay open at 17.5 million barrels per day, and potential re‑attacks by the Houthis on Saudi infrastructure.
Senior oil analyst Xuyi Zhao of Guotai Junan Futures told Bloomberg that the market is pricing not only the volume of crude being loaded but also whether those barrels can be delivered safely, reliably and at low cost. The higher cost of getting crude to refiners, combined with low inventories that cannot offset a near‑term disruption, sets the stage for another price spike if a supply route in the Middle East is attacked, as happened with Saudi Arabia’s East‑West pipeline to the Red Sea last month.
Saudi Aramco CEO Amin Nasser warned that “with precious little else the world can turn to, the supply resilience cushion is scarily thin.” He added that emergency reserves might buy a winter but cannot fix long‑term supply, and that until the Strait of Hormuz fully re‑opens and confidence returns, pressure at both ends of the barrel will intensify.
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