Explainer-Why isn't oil above $100 despite supply disruptions?

Global oil benchmark Brent crude has surged this month, still remaining below $100 per barrel despite the intensifying U.S.-Iran conflict which has disrupted oil exports from the Gulf. According to Argus data, Middle East oil producers are now exporting about 11 million barrels per day, down from 18 million bpd prior to the Iran war that began seven months ago.

While the Strait of Hormuz has been the primary choke point, significant volumes managed to flow through the region in the week before hostilities resumed on August 30 - roughly 8 to 9 million bpd, a two-fold increase from the week before. However, recent daily moving averages have settled around 4 to 5 million barrels, suggesting Brent's fair price is around $95.

Exports from Gulf nations have found alternative routes, such as ship-to-ship transfers outside Hormuz, helping to mitigate earlier supply shortages. Saudi Aramco resumed loading operations at its Ras Tanura port in August, although exports from the alternative Red Sea port of Yanbu remain constrained by a Houthi naval blockade.

Iraq and the UAE have also ramped up production, with Iraq's exports rebounding to around 2.34 million bpd in August and UAE exports hovering around 2.9 million bpd. However, Iran's exports have plummeted due to the U.S. blockade, sharply reducing its market share.

On the demand side, top importer China has significantly reduced its seaborne crude shipments to 7 million bpd in July and August, from over 11 million bpd in February. Beijing's considerable oil reserves have provided some market reassurance. Additionally, spot premiums for Dubai and Oman cargoes have rebounded to April levels, reflecting tight supply conditions in the global oil market.

Industry analysts are forecasting Brent prices averaging $100 per barrel in the fourth quarter, with some banks raising their forecasts, including Morgan Stanley and Goldman Sachs. The recent escalation between the U.S. and Iran is expected to further hamper Gulf exports while demand rises, particularly as the petrochemical and transportation fuel sectors face significant demand destruction.