Crude oil flow in the Strait of Hormuz and the entire Middle East region has returned to levels close to pre-war. Ship tracking services have reported this situation for over a month. However, Middle Eastern oil benchmarks have been weakening for several weeks, indicating that an increase in oil supply may be forming. This situation, along with rising exports from the Gulf and weakened global demand due to high oil prices, has created a complex scenario.
Increased Transportation Costs
Transportation costs for crude oil have not decreased for refiners and consumers. The war, insurance premiums, and unprecedented tanker rates have increased the cost of transporting a barrel of crude oil from about $5 to $30. Middle Eastern producers have had to lower their official selling prices to attract customers, as increased exports from the Gulf have weakened local prices. Additionally, despite high transportation costs, Middle Eastern crude can only attract price-sensitive buyers in Asia at lower prices.
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Impact of War on the Global Oil Market
Middle Eastern oil pricing and the weakened market structure of these benchmarks indicate the formation of an oil surplus. However, this increase in flows does not mean a reduction in traffic risks through the Strait of Hormuz. In fact, attacks on ships have increased in the past month, and producers have occupied a large portion of the global tanker fleet for inefficient movements in the Strait of Hormuz and ship-to-ship transfers in the Gulf of Oman. Normal oil trading patterns from before the Iran war may never return to their previous state.
Currently, the market is influenced by hopes for an agreement between the United States and Iran, while Brent crude prices dropped to around $91 a barrel on Tuesday. At the same time, Middle Eastern crude prices are under pressure from apparent surplus. The November contract for the Dubai benchmark entered contango earlier last week, indicating that concerns about an immediate lack of oil supply have significantly diminished.
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