Why is oil below $100 given the supply issues?

Even though flows are now below 2 million barrels per day (bpd), the daily moving average remains at 4 to 5 million bpd, implying that Brent is at a “fair” value of $95, according to Rystad Energy Chief Economist Claudio Galimberti.

Global benchmark Brent crude rallied in September but stayed below $100 a barrel, despite a recent escalation in the US-Iran conflict that has disrupted Gulf exports through the Strait of Hormuz and the Red Sea.

As of early September, crude oil shipments from Middle East producers stood at about 11 million bpd, down from 18 million bpd before the Iran war began roughly seven months earlier, according to Argus.

Some of the factors influencing the price of oil are:

• Significant volumes have been able to flow through Hormuz
• Gulf exporters are finding alternative routes
• Other producers are stepping up
• Demand destruction is significant
• Physical markets tell a different story
• Analysts raise forecasts

Significant volumes have been able to flow through Hormuz

In the week before fighting erupted again on August 30, roughly 8 to 9 million bpd was flowing through Hormuz, double the previous week’s volume, said Galimberti.

Flows have since fallen to below 2 million bpd, but the daily moving average remains between 4 and 5 million bpd, giving Brent a “fair” price of $95, he said. Industry estimates put daily exports between 6 and 8 million bpd.

No very large crude carrier has been seen exiting the strait since September 2, Kpler data showed on September 7.

During the interim US-Iran peace deal in July, Hormuz exports touched pre-war levels of 16 million bpd.

Gulf exporters are finding alternative routes

Gulf producers have found alternative routes and are expected to keep sending cargoes for ship-to-ship transfers outside Hormuz.

Saudi Aramco has resumed loadings at its Ras Tanura port inside the Gulf since August, even as exports from the Red Sea port of Yanbu remain under pressure from a naval blockade by the Yemeni Houthis, who are allied with Iran. Yanbu exports fell to a six-month low of 1.429 million bpd in August, from an average of 3.9 million bpd in the previous three months, according to provisional Kpler data.

Exports from Egypt’s Sidi Kerir port rose to 2.139 million bpd in August, more than double June’s level.

Exports from Iraq, the second-largest producer in Opec, rebounded in August to about 2.34 million bpd.

UAE shipments hovered around 2.9 million bpd in July and August, after hitting a record in June, Kpler data showed.

Kuwaiti crude exports have recovered to about 1 million bpd in July and August.

However, Iran’s oil exports have fallen sharply due to the US blockade.

Other producers are stepping up

Non-Opec producers such as the US, Canada and Guyana are set to increase output by a combined 1.4 million bpd this year, said Jarand Rystad, founder of Rystad Energy.

Russian crude exports held steady at about 5.5 million bpd in July and August, down from a June peak of 6.4 million bpd but still 23% higher than in February, as refinery processing has fallen because of damage from Ukrainian attacks, Kpler data showed.

However, Russia has lowered its 2026 oil output forecast to a 17-year low, which could reduce its exports.

Demand destruction is significant

Demand destruction in petrochemicals and transport fuels remains significant at 3.5 million bpd in the third quarter, versus 4.5 million bpd in the second, according to Rystad. China accounts for more than half of it because of rising transport electrification and coal-based chemicals.

China, the top importer, dubbed the “new demand OPEC” for its market influence, cut seaborne crude imports to 7 million bpd in July and August, from over 11 million bpd in February.

China’s vast reserves, estimated by Kpler at 1.17 billion barrels, have also cushioned the market.

Physical markets tell a different story

Spot premiums have rebounded to April levels, with Dubai and Oman at $19 to $20 a barrel above Dubai quotes for cargoes loading in November, Reuters data showed. Oman futures stood at $104.54 a barrel on September 7, while cash Dubai traded at $105.10.

David Fyfe, chief economist at Argus, said physical markets are extremely tight, with prices substantially above $100 a barrel and a diesel market in severe shortage.

The latest US-Iran escalation is expected to curb Gulf exports while demand rises as refiners ramp up diesel output, with diesel hitting a record high in the US.

Analysts raise forecasts

Several banks have raised their Brent price forecasts. Morgan Stanley expects prices to average $100 a barrel in the fourth quarter.

Goldman Sachs raised its Brent and West Texas Intermediate (WTI) forecasts by $5 a barrel for December 2026 and 2027, citing an expectation that Middle East shipping disruptions will persist into next year. It now forecasts Brent at $85 a barrel and WTI at $80 for December 2026, and $80 and $75 respectively for 2027.