Oil Flows Out of the Gulf Beat Pre-War Levels, Yet Brent Stays More Than 60 Percent Higher

Oil flows out of the Gulf have increased substantially, easing the huge supply disruption caused by the United States and Israel's war on Iran. Yet Brent crude prices are up more than 60 percent compared with pre-war levels, despite the rebound in supply.

Crude exports from the Gulf averaged 24.6 million barrels per day in the week to October 18, exceeding the pre-war average, according to market intelligence firm Kpler.

Brent crude, the global benchmark, is trading at its highest prices since April. On Friday, Brent front-month futures, contracts for deliveries in December, rose more than 2 percent to briefly top $117 a barrel.

According to market analysts, the climbing prices reflect anxiety about the possibility of renewed hostilities in the US war on Iran, dwindling oil stocks, and the increased costs of transporting supplies out of the region.

Adi Imsirovic, a lecturer in energy systems at the University of Oxford and a veteran oil trader, said the market is telling us there is plenty of prompt oil, but there is no end to this war in sight and escalation is very likely, and futures markets reflect that expectation.

Facing the threat of Iranian attacks on shipping in the Strait of Hormuz, shipping lines have established a shuttle system involving ship-to-ship transfers off Oman and the United Arab Emirates to reduce the distance any one vessel must travel in perilous waters. Shuttle boats carry the oil through the strait and load it onto waiting tankers once they are out of the danger zone.

In August, more than 70 percent of the crude that crossed the strait did so via ship-to-ship transfers, according to Kpler.

Oil producers have also ramped up exports that bypass the strait altogether via Saudi Arabia's East-West pipeline, which carries oil from its eastern fields to its Yanbu port on the Red Sea, and the United Arab Emirates' Habshan-Fujairah pipeline. As of September, 40 percent of exports from the Gulf were bypassing the strait, compared with 17 percent before the war, according to Kpler. During peacetime the strait is a conduit for one-fifth of global oil and liquefied natural gas supplies.

Such workarounds have nonetheless come at a cost. Freight costs have reached as much as $40 per barrel in recent weeks, about 10 times the usual rate, according to data from the London Stock Exchange Group, driven by elevated insurance premiums in addition to logistical challenges.

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

Isabel Figuerola-Ferretti, an expert in oil markets at Comillas Pontifical University in Madrid, said barrels are moving, but neither smoothly nor reliably, and that should not be read as a sign of normalisation. Delivering a barrel, she said, has become far more expensive.

The longer-term supply trend is less clear. Pavel Molchanov, an investment strategist at Raymond James & Associates, expressed scepticism that supply has returned to the pre-conflict trend. The IEA's most recent production data, for September, shows OPEC Gulf production at 15.8 million barrels per day, which equates to 75 percent of the pre-war baseline, slightly above July's 74 percent but still a considerable distance from 100 percent.

Meanwhile, oil stockpiles, a buffer during supply disruptions, are waning. Observed inventories fell by 10 million barrels in September, taking the global stockpile to 509 million barrels below its pre-war level, according to the IEA.

Asked when prices could return to $70, Figuerola-Ferretti said not soon. It would need, she said, durable de-escalation, a return to normal transit and shipping conditions through Hormuz, rebuilt inventories and freight costs back to normal. Brent futures for delivery in October 2027 stood at more than $90 a barrel on Friday.

Molchanov said he did not believe supply could realistically exceed 85 percent of pre-war levels without a permanent diplomatic solution to the war. Once the political groundwork is in place, he said, the next steps will be logistical: demining Hormuz, bringing shipping crews back to work, and resuming production at currently shut-in oilfields.