An important Middle Eastern spot crude benchmark has dropped to its lowest level in nearly three months, even as Iran keeps attacking shipping vessels, underscoring the resilience of the region's crude exports.
Data from General Index shows the spread of Oman crude over Dubai crude has narrowed back to around $4 per barrel, the lowest since late July. This spread is a gauge of strength in the Gulf spot crude market. Early in the conflict, the spread had surged above $60 per barrel, when the Strait of Hormuz was nearly shut and shipping was severely disrupted.
Major Middle Eastern crude exporters are either sending tankers through the strait despite the risk of attack, or using pipelines to bypass the Strait of Hormuz altogether. As crude shipments flow more smoothly, Iran's strategy of using control over a key global energy passage as bargaining leverage has been weakened. The war between Iran and the United States and Israel has now lasted seven months.
U.S. Secretary of State Rubio said on Tuesday that crude volumes through the Strait of Hormuz are close to pre-war levels. Many vessels have turned off their transponders, making traffic accounting harder, but data from intelligence firms such as Kpler and Vortexa both show that overall Middle Eastern crude exports have rebounded sharply since the summer.
June Goh, a crude oil analyst at Sparta Commodities, said ample near-term deliverable cargo supply is putting pressure on the Gulf crude market. Matias Togni, an independent crude trading strategist, said Middle Eastern spot crude prices reflect improved supply conditions, although the main theme in futures markets remains concern about tighter supply ahead.
Brent crude on Tuesday briefly hit a five-month high of $112 per barrel on worries that Iran would step up attacks on ships and fight for control of the strait; prices edged higher on Wednesday. Gulf producers are fiercely competing for customers to make up for the massive lost sales revenue during the war.
Iraq has restored crude export volumes to roughly pre-war levels by offering steep discounts of as much as $37 per barrel against the regional benchmark, with part of that discount used to cover elevated tanker charter rates, which are currently at historic highs. International Energy Agency data show the United Arab Emirates is among the countries with the best recovery in shipments out of the Strait of Hormuz, with output hitting a record high last month. Saudi Arabia raised crude output in September by a third from the previous month, topping 8 million barrels per day and rebounding sharply from a more than three-decade low the month before.
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