By COMFORT OGBONNA
Global oil prices climbed above $100 a barrel on Wednesday for the first time since late July as escalating conflict in the Middle East intensified concerns about the security of crude shipments from one of the world’s most important energy-producing regions.
Brent crude, the global benchmark, crossed the $100 threshold as traders assessed the potential for further disruptions to oil supplies. The increase, however, has been relatively gradual compared with the scale of the geopolitical risks facing the market, suggesting that concerns over weaker demand, alternative export routes and additional production from other countries are helping to cushion the impact of the supply disruptions.
About 9 million barrels per day of crude oil and roughly 1 million barrels per day of refined petroleum products have continued to leave the Middle East in recent days, according to industry estimates. That represents a substantial decline from the approximately 20 million barrels per day of crude and refined products that were being exported from the region before the latest conflict began.
A major factor preventing an even sharper price surge has been the continued movement of oil through the Strait of Hormuz, a critical waterway through which a significant portion of global energy supplies normally passes.
In the week before fighting intensified again on August 30, between 8 million and 9 million barrels per day were estimated to have moved through the strait, roughly twice the volume recorded during the previous week. Shipments have since fallen considerably, but the continued flow has provided some relief to an oil market already facing heightened uncertainty.
During a temporary U.S.-Iran agreement in July, crude exports through the Strait of Hormuz recovered to approximately 16 million barrels per day, demonstrating how quickly global supplies can respond when restrictions on shipping are eased.
Gulf oil producers have also been seeking alternative ways to move crude to international markets. Producers have increasingly relied on other ports, pipelines and ship-to-ship transfers outside the Strait of Hormuz to reduce their exposure to disruptions in the waterway.
Saudi Arabia, one of the world’s largest oil exporters, resumed crude loadings from its Ras Tanura terminal inside the Gulf in August. At the same time, exports from Yanbu on the Red Sea have faced pressure from security threats and disruptions linked to attacks by Iran-aligned Houthi forces.
Exports from Yanbu fell to about 1.43 million barrels per day in August, significantly below the roughly 3.9 million barrels per day recorded on average during the previous three months. Further attacks on Saudi energy infrastructure could place additional pressure on shipments through the Red Sea and force producers to seek alternative routes.
Other regional exporters have also contributed to maintaining global supplies.
Exports through Egypt’s Sidi Kerir terminal, an important alternative route for moving crude to the Mediterranean, rose sharply in August to about 2.14 million barrels per day, more than twice the level recorded in June.
Iraq, the second-largest producer in the Organization of the Petroleum Exporting Countries, also saw its exports recover in August to roughly 2.34 million barrels per day. Shipments from the United Arab Emirates remained near 2.9 million barrels per day during July and August, while Kuwait’s crude exports recovered to around 1 million barrels per day.
Iran, however, has experienced a substantially different situation. Its oil exports have fallen sharply amid restrictions on shipping and the wider conflict, reducing the amount of Iranian crude reaching international markets.
Supply from outside the Middle East is also helping to limit the potential size of the global shortfall.
Non-OPEC producers, including the United States, Canada and Guyana, are expected to increase combined production by about 1.4 million barrels per day this year. Additional output from these producers could partly compensate for lost barrels from the Middle East and provide a degree of protection against a prolonged supply shortage.
Russia has also continued to export significant volumes of crude despite disruptions affecting its domestic refining industry. Russian crude exports remained around 5.5 million barrels per day in July and August, below the June peak of approximately 6.4 million barrels per day but still well above levels recorded earlier in the year.
However, Russia has reduced its forecast for oil production in 2026 to its lowest expected level in 17 years. A sustained decline in Russian production could further tighten the global market if Middle Eastern disruptions continue.
While supply concerns have pushed prices higher, weaker global oil demand remains an important factor limiting the rally.
Oil demand in the petrochemical and transportation sectors is estimated to have fallen significantly during the third quarter. The decline is smaller than in the second quarter but remains large enough to offset part of the supply losses.
China, the world’s largest oil importer, accounts for a substantial share of the decline. Its seaborne crude imports fell to around 7 million barrels per day in July and August, compared with more than 11 million barrels per day in February.
China’s oil demand is also expected to decline this year, marking a third consecutive annual contraction. Rising adoption of electric vehicles, changes in industrial fuel consumption and increased use of coal in some chemical production have contributed to the weaker demand outlook.
China’s large stockpiles of crude have provided another source of reassurance for the market. Estimates put the country’s oil reserves at around 1.17 billion barrels, giving refiners and other consumers a significant cushion against temporary interruptions in international supplies.
Despite these factors, physical oil markets are showing signs of considerably tighter conditions than headline crude prices alone might suggest.
Premiums for physical crude cargoes have risen sharply, while prices for some grades of Middle Eastern crude have moved significantly above benchmark levels. Oman crude futures also climbed well above $120 a barrel on Wednesday, highlighting the growing competition for immediately available supplies.
The tightening is particularly visible in refined petroleum products, with diesel markets coming under increasing pressure as refiners seek to increase production to meet demand.
The latest escalation in the Middle East is expected to put additional pressure on Gulf exports while simultaneously increasing demand for refined fuels as refineries raise production. Diesel prices in the United States have also reached record levels, adding to concerns about the impact of higher energy costs on consumers and businesses.
The prospect of prolonged disruption has prompted several financial institutions to raise their forecasts for oil prices.
Morgan Stanley expects Brent crude to average about $100 a barrel during the fourth quarter, while HSBC has increased its forecasts for the benchmark in both 2026 and 2027.
Goldman Sachs has also raised its projections for Brent and West Texas Intermediate crude, citing expectations that disruptions to oil shipments from the Middle East could continue into next year.
The bank now expects Brent crude to reach about $85 a barrel by December 2026, with West Texas Intermediate at around $80. Its forecasts for 2027 stand at approximately $80 for Brent and $75 for WTI.
The outlook for oil prices will ultimately depend on the duration and scale of the disruptions. If major shipping routes remain open and alternative export channels continue to function, the market may be able to absorb part of the lost supply. But a prolonged interruption to shipments through the Strait of Hormuz could create a much larger deficit and push prices considerably higher.
For now, the market is balancing two opposing forces: growing geopolitical risks that threaten oil supplies and weakening demand that is limiting the extent of the price surge. With Brent already above $100 a barrel, traders are watching developments in the Middle East closely for signs of whether the disruption will intensify or whether additional supply can prevent a more severe global energy shock.
Original article
Comments