Logistics Bottlenecks Keep Oil Prices High Above $100

The oil market continues to face upward pressure despite a recovery in supply, with transportation, insurance, and refining costs playing a major role in keeping prices elevated. Middle Eastern crude oil exports have rebounded, with flows through the Strait of Hormuz averaging 14.2 million barrels per day as of September 26, representing 80% of pre-conflict levels. However, Brent crude remains above $100 per barrel, highlighting how logistics challenges are overshadowing physical supply constraints.

New bottlenecks in oil logistics are driving up costs. The shift in trade routes due to conflicts in the Middle East and Eastern Europe has led to higher chartering fees, expensive marine insurance, and reduced refining capacity. Some buyers are seeking oil from more distant regions, increasing travel distances and reducing the availability of vessels for other routes. These factors have pushed freight rates to exceptional levels, with the cost to transport crude oil from the Middle East to Asia in a VLCC exceeding $1.2 million daily, up from $30,000 at the start of the year.

The reduction in refining capacity in the Middle East and Russia has further complicated the situation. Attacks on facilities and operational disruptions have limited fuel production, particularly diesel, driving up prices and increasing competition for certain types of crude oil. Refineries are prioritizing medium-grade and higher-sulfur crudes, which come predominantly from the Middle East and Russia, adding another layer of pressure to the market.

As a result, even with the recovery in supply, oil prices remain high. The global oil deficit has decreased from 4 million barrels per day in May to 1.6 million barrels per day, but transportation and refining challenges continue to support elevated prices. A full recovery of supply alone will not guarantee an immediate market downturn as long as these logistical difficulties persist.