Key facts
- Brent crude oil futures rose above $100 per barrel on Wednesday.
- Escalating fighting between U.S. and Iranian forces has intensified concerns about oil flows from the Middle East.
- Daily crude oil outflows from the Persian Gulf have fallen to below 2 million barrels.
- The International Energy Agency reported global oil inventories dipped by 69 million barrels in July.
- Some Middle Eastern producers use pipelines to export crude outside the Strait of Hormuz.
Brent crude oil prices surpassed $100 per barrel on Wednesday morning, a level not seen since late July, as escalating conflict between U.S. and Iranian forces raised concerns over oil supply from the region. For months, prices had been capped by reports of improving tanker traffic through the Strait of Hormuz, with average daily outflows in early August estimated between 6 and 8 million barrels, or even higher at 8 to 9 million barrels by late August according to Rystad Energy. However, renewed fighting has drastically reduced these flows to below 2 million barrels daily, according to Rystad Energy data cited by Reuters. Kpler data noted that no very large crude carriers have exited the strait since September 2.
The escalation saw the United States report the destruction of five Iranian tankers in the Persian Gulf, prompting Iran to attack a U.S. base in Jordan. Despite these tensions, some Middle Eastern producers have utilized alternative export channels, such as pipelines to ports outside the Strait of Hormuz, including routes for the UAE, Iraq, and Saudi Arabia. However, attacks on refineries on the Arabian Peninsula by Iranian forces and on the Jizan refinery by Houthis highlight ongoing risks.
The International Energy Agency reported in its latest Oil Market Report that global oil inventories declined by 69 million barrels in July, adding to previous draws and indicating a daily decline rate of 2.7 million barrels. This trend is expected to continue as conflict persists, potentially pushing prices higher. While some observers point to existing storage and production capacity as a buffer, the sustained drawdown of inventories suggests a tightening market. Both Murban crude and the DME Oman benchmark are already trading above $100 per barrel, with the OPEC and Indian baskets also surpassing this mark. The current geopolitical climate, coupled with rising demand in the final quarter of the year, suggests that oil prices may remain elevated.
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