The premium of Oman oil over Dubai, which is recognized as a benchmark for measuring oil market strength in the Middle East, has decreased to $4.22 per barrel. This level is the lowest since the end of July 2023 and indicates an increase in oil flows from the region.
Increased oil flows and their impact on the market
Strong crude oil flows from the Middle East in recent weeks have put significant pressure on the key supply strength benchmarks in the region. The premium of Oman oil, which reached $65 per barrel in March, peaked due to the near-complete closure of the Strait of Hormuz and the halt of oil transfers from the Middle East. In June and July, this rate was discounted for three weeks due to negotiations between the United States and Iran.
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However, with the resumption of tensions in August and September, the premium of Oman oil increased again. Nevertheless, the increase in oil supply, especially through ship-to-ship (STS) transfers in the Gulf of Oman, has improved oil flows in recent weeks.
Transportation challenges and their impact on the global market
The increase in oil supply, especially cash cargoes, has led to a decrease in the premium of Oman oil over Dubai from $30 per barrel in mid-September to around $4 this week. Reports indicate that oil flows from the Middle East are returning to pre-war levels, but transportation costs have risen sharply.
The freight rates for transporting oil have reached their highest level due to a shortage of tankers. The increase in oil flows from the Strait of Hormuz, primarily thanks to STS transfers, has caused very large crude carriers (VLCCs) to wait for weeks for transfers outside the strait, which has limited access to these tankers for other global oil trade routes, including from the Gulf Coast to Asia.
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