Brent oil has recently traded at around $101.6, while West Texas Intermediate has reached about $89.6 per barrel. Despite claims of a significant return of Middle Eastern oil exports to pre-war levels, the global oil market still fluctuates around $100 per barrel. This situation indicates that an increase in supply, even if it is a reality, is not enough on its own to lower prices.
Reasons for Sustained High Prices
The oil market still lacks confidence in the end of conflicts. Increased U.S. military presence in the Gulf, the deployment of an aircraft carrier and additional troops, and ongoing attacks on ships have kept the risk of supply disruption alive. According to data from the International Energy Agency, about 20 million barrels of crude oil and petroleum products are expected to pass through the Strait of Hormuz in 2025, which is nearly a quarter of the world's seaborne oil trade.
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Even when oil is produced and ready for export, transporting it to its destination incurs much higher costs. The cost of transporting oil from the Gulf to China has, in some cases, exceeded $1.2 million per day. The use of unconventional routes, transferring shipments from one ship to another, and shorter passages through high-risk areas have increased the final cost of oil.
Supply Shortages and Pressure on Refineries
Another reason for the sustained high prices is the reduction of global oil reserves. According to the International Energy Agency, monitored oil reserves decreased by about 507 million barrels from February to August, with 95 million barrels withdrawn from reserves in August alone. Additionally, the market for products like diesel is also facing shortages. The U.S. Energy Information Administration has predicted that global reserves will remain under pressure until the end of 2026.
The return of crude oil exports does not necessarily mean a return of fuel supply. According to Fatih Birol, Executive Director of the International Energy Agency, crude oil exports have largely improved, but the flow of refined product exports remains severely limited. The Group of Seven and its partners announced on October 2 a plan to supply 100 million barrels from emergency reserves over four months, a significant portion of which will be allocated for diesel supply.
Therefore, even with the return of some Middle Eastern exports, a sustained drop in Brent prices below $100 requires both a de-escalation of conflict risks and a return to normal conditions for the transportation, refining, and storage of oil and products.
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