Oil Prices Lag Expectations Despite Conflict, Alternative Routes Hold Key

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.

According to Argus, crude oil shipments from Middle East producers are at about 11 million barrels per day (bpd) now, down from 18 million bpd before the Iran war began seven months ago.

Claudio Galimberti, Chief Economist of Rystad Energy, said that 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.

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.

Gulf exporters are using alternative routes and means, with Saudi Aramco resuming loadings from its Ras Tanura port inside the Gulf in August. Exports from the alternative port of Egypt's Sidi Kerir hit 2.139 million bpd in August, more than double June volumes.