Gulf Disruptions Fail to Send Oil Prices Soaring Above $100

The recent conflict in the Gulf has disrupted oil flows through the Strait of Hormuz, but surprisingly, Brent crude prices have not surged above $100 a barrel. The reason lies in multiple offsetting mechanisms that are simultaneously affecting supply, logistics, demand, and inventories.

Rystad Energy data shows that Middle East oil shipments have fallen to around 11 million barrels per day (bpd), down from 18 million bpd before the Iran war began seven months ago. However, alternative routes and ship-to-ship transfers are helping to mitigate the impact of the disruption. Saudi Aramco has resumed loadings from its Ras Tanura port, while exports from Egypt's Sidi Kerir port have increased.

Despite the decline in Hormuz traffic, industry estimates suggest that current daily exports through the strait range between 6 million and 8 million barrels. Rystad Energy Chief Economist Claudio Galimberti notes that the average level is consistent with a Brent price of around $95 a barrel. The market is pricing a serious disruption, but not necessarily a permanent removal of all Gulf supply.

Non-OPEC producers, including the United States, Canada, and Guyana, are expected to add 1.4 million bpd this year, partly filling the gap created by disrupted Middle East supply. Russian exports provide another buffer, although they have fallen below their recent peak. Lower refinery processing in Russia has allowed more crude to enter export markets.

Rystad estimates that demand destruction in petrochemicals and transport fuels remains significant at 3.5 million bpd in the third quarter, with China accounting for over half of this decline. The country's large reserves provide reassurance to the market, but do not eliminate the risk created by a prolonged disruption.