Oil benchmarks are heading for a fourth consecutive monthly rise despite reports of recovering exports through the Strait of Hormuz, according to OilPrice.com. Its analysis argues that shipping hazards and the prospect of further conflict are keeping prices above $100 a barrel, outweighing the downward pressure from increased Gulf oil flows.
Reports a month earlier that Hormuz shipments had returned to pre-war levels initially pushed prices lower, but the decline proved short-lived. OilPrice.com said dozens of tankers had been struck by drones or missiles in recent weeks. It also linked a shortage of vessels to Saudi Arabia’s move towards ship-to-ship transfers off Oman, intended to reduce exposure to attacks in Hormuz and the Red Sea.
The resulting surge in transport costs has complicated the picture for Middle Eastern crude. According to the report, shipping charges have reached record levels, prompting producers to offer discounts to encourage buying. OilPrice.com cited UBS commodity strategist Giovanni Staunovo, speaking to the Wall Street Journal, as warning that the export recovery had occurred alongside worsening maritime security and sharply higher freight and insurance costs.
The report also highlighted a gap between futures and physical oil prices. Futures initially registered relatively modest gains as traders expected a brief conflict and ample supplies provided a buffer, while physical prices rose much more sharply. OilPrice.com said the two markets appeared to be moving closer together after several months, with physical prices below their earlier peaks. However, it argued that the global supply cushion had now been exhausted, while diesel prices for motorists were at record highs.
The outlook remains clouded by the duration of the disruption. OilPrice.com reported that International Energy Agency executive director Fatih Birol expected its effects to persist well into next year. It also cited a Brent fair-value estimate of $94 a barrel from a model used by JP Morgan’s head of global commodities, Natasha Kaneva, as reported by the Wall Street Journal.
Potential renewed fighting adds another source of price support. The report said President Trump had discussed resuming hostilities after the November 3 midterm elections, while Iran had threatened retaliation. Despite diplomatic efforts by Gulf states and Pakistan, OilPrice.com’s assessment was that a meaningful reduction in the war premium would require clearer prospects for peace.