Middle East Oil Flows Recover, but War Costs Keep Markets Strained

Vessel-tracking services have indicated for more than a month that crude flows through the Strait of Hormuz and across the Middle East are nearing pre-war levels. Weaker regional benchmarks and recovering Persian Gulf exports point to a possible glut, compounded by reduced global demand amid high prices. Yet shipping a barrel of crude, which cost about $5 before the war, now costs as much as $30 and at times more.

Higher freight costs and softer physical prices have prompted producers to cut official selling prices to attract buyers, particularly in price-sensitive Asian markets. Saudi Aramco reduced its December-loading Arab Light price for Asia by $2 a barrel, setting it at a $6.50 discount to the Oman/Dubai average—the steepest discount to the regional benchmark since May 2020.

The Dubai benchmark’s November contract moved into contango early last week, indicating that immediate supply concerns had eased. But greater flows have not made passage through Hormuz safer. Vessel attacks intensified over the past month, while tanker shortages and ship-to-ship transfers in the Gulf of Oman have tied up ships on inefficient routes. War-related insurance and transport risks remain, and pre-war trade patterns may not return, the article says.

Brent crude fell about 17% in the five trading days after the U.S. midterm elections, trading just above $91 a barrel early Tuesday, amid renewed hopes of a U.S.-Iran agreement. Hansen cautioned that the market was responding to hopes rather than firm evidence of a breakthrough, and said the decline could reverse without sustained positive signals from Washington and Tehran.

Even a lasting settlement of the Iran and Ukraine wars may not quickly restore supply buffers. Saudi Aramco CEO Amin Nasser said replenishing inventories while meeting demand could take up to two years. ADNOC chief executive Sultan Al Jaber said the Middle East crisis had drawn nearly 1 billion barrels from inventories and that diesel stocks in some markets were at their lowest seasonal levels in 35 years.