Gulf oil exports top pre-war levels, but Brent still climbs past $117

Crude exports from the Gulf averaged 24.6 million barrels per day (bpd) in the week to October 18, exceeding the pre-war average, according to market intelligence firm Kpler. Yet Brent crude, the global benchmark, is trading at its highest prices since April, up more than 60 percent on its pre-war level, and front-month futures briefly topped $117 a barrel on Friday.

Analysts say the gap between rising flows and rising prices reflects anxiety over the US/Israel war on Iran rather than any physical shortage of prompt oil.

War risk, not supply, drives prices

"The market is doing exactly what it is supposed to do: It is telling us there is plenty of prompt oil, but there is no end to this war in sight – in fact ... escalation is very likely," Adi Imsirovic, a lecturer in energy systems at the University of Oxford and a veteran oil trader, told Al Jazeera. Futures markets, he said, reflect that expectation.

Producers have adapted to the volatile conditions. With Iranian attacks threatening shipping in the Strait of Hormuz, lines have set up a shuttle system using ship-to-ship transfers off Oman and the United Arab Emirates, shortening the distance each vessel spends in dangerous waters. In August, more than 70 percent of crude crossing the strait moved this way, Kpler data shows.

Exporters have also increased volumes that avoid the strait entirely, using Saudi Arabia's East-West pipeline to Yanbu on the Red Sea and the UAE's Habshan-Fujairah pipeline. As of September, 40 percent of Gulf exports bypassed the strait, compared with 17 percent before the war. The strait normally carries one-fifth of global oil and liquefied natural gas supplies.

Costs and inventories weigh on the market

The workarounds are expensive. Freight costs have reached as much as $40 per barrel in recent weeks, about 10 times the usual rate, according to London Stock Exchange Group data, driven by high insurance premiums and logistical challenges.

"So barrels are moving, but neither smoothly nor reliably. That should not be read as a sign of normalisation," Isabel Figuerola-Ferretti, an oil markets expert at Comillas Pontifical University in Madrid, told Al Jazeera.

October has been the deadliest month for attacks on commercial vessels since the war began, with 32 incidents logged by the United Kingdom Maritime Trade Operations as of Friday.

Stockpiles are also thinning. Observed inventories fell by 10 million barrels in September, leaving the global stockpile 509 million barrels below its pre-war level, according to the International Energy Agency. Pavel Molchanov, an investment strategist at Raymond James & Associates, pointed to IEA September data showing OPEC Gulf production at 15.8 million bpd – 75 percent of the pre-war baseline, up from 74 percent in July.

Few analysts expect a quick return to normal. Brent futures for October 2027 delivery stood above $90 a barrel on Friday. Molchanov said supply was unlikely to exceed 85 percent of pre-war levels without a permanent diplomatic solution, after which demining Hormuz, restoring shipping crews and reopening shut-in oilfields would follow.

Source: Al Jazeera.