The price of Brent oil has remained above $100 per barrel for most of last month, while recent reports and statistics indicate that oil flow from the Strait of Hormuz has returned to pre-war levels. While a large volume of oil is being exported from the Middle East, prices remain high.
Challenges in the Oil Market
The return of oil flow to pre-war levels does not mean the market is normalizing. The cost of extracting oil from the Middle East is extremely high, and transportation rates have reached unprecedented levels. The realities of war risks have also increased due to repeated attacks on tankers in the Strait of Hormuz. Gulf producers have responded to oil flow issues by using alternative routes, which are less efficient and incur higher costs for buyers.
Export Restrictions and Diesel Crisis
Fuel exports from the Middle East remain limited, and Russian exports are absent due to Moscow's ban on diesel shipments. China has also resumed supporting its domestic supply and restricted fuel flow abroad. Additionally, global inventories have significantly decreased this year, putting substantial pressure on the market.
These challenges are just the operational issues that global markets are facing. The geopolitical situation is also the biggest unknown for future oil prices, and it does not seem that the war will end soon. Concerns about a renewed escalation of tensions, especially before or after the U.S. midterm elections in early November, have impacted the market.
Given the inventory shortages and high transportation costs, oil prices are expected to rise. According to Amin Nasser, CEO of Aramco, "Given the existing shortages, only emergency reserves may sustain us through the winter."
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