Bearish signs on oil markets emerge

Recent developments in the oil markets have revealed bearish signs, driven primarily by the ongoing US-Iran conflict. The conflict has taken a toll on oil flows in the Red Sea, with the Houthis resuming attacks on Saudi-linked vessels and the East-West pipeline, crippling crude transport from the port of Yanbu. However, the East-West pipeline's operating rates have recovered to nearly 80% capacity, despite continued threats of further attacks.

Global seaborne crude supply has remained resilient, with September lifting significantly compared to the 2024 average baseline. This growth was primarily driven by the Middle East Gulf, which contributed 3.8mbd to the total, compensating for 740kbd of losses from the Red Sea. Meanwhile, Iran's seaborne crude/condensate liftings have ceased entirely.

Middle Eastern national oil companies have devised innovative strategies to circumvent disruptions, including pipeline redirection, shuttle tankers, and STS sales at the East of Hormuz region. These measures have allowed Middle Eastern crude/condensate liftings to recover as of October 1st.

The fight for market share in the Middle East is intensifying, with Saudi Aramco offering record discounts on its Arab Medium/Heavy grades, further fueling competition. Global seaborne crude/condensate liftings could continue their upward trajectory into October, reaching near the peak levels seen in 2025, assuming Asian refiners continue to drive demand despite supply uncertainties in the Strait of Hormuz.

While Pacific Basin crude/condensate imports have reached 10-year seasonal lows, the shortage is likely temporary due to voyage delays. The Atlantic Basin has seen a decline in crude/condensate liftings, while the Pacific Basin has experienced a significant increase of 3.8mbd m-o-m. The imbalance between these two basins highlights changing crude demand this autumn, with Asian refiners ramping up purchases to offset the recent shortfall.

China's seaborne crude/condensate imports have been relatively stagnant since July, nearing a ten-year seasonal low. This trend is attributed to the country's reduced reliance on Iranian crude/condensate supplies and its increased reliance on onshore crude inventories, which remain abundant at 1.1 billion barrels. Despite stock draws in other parts of Asia and the Middle East, China's overall inventory levels remain strong.