Oil is flowing out of the Persian Gulf region at its highest levels in more than a month, analysts say, keeping a lid on prices even as the Iran war is far from resolved.
That's left the oil market in a "not-so-bad equilibrium" six months into the war, writes Capital Economics economist Kieran Tompkins.
He estimates that flows out of the Persian Gulf-using the strait and alternate exit routes-have rebounded to about 80% of prewar levels. It helps explain why prices of Brent crude, the international benchmark, are trading around $89 per barrel despite little progress in negotiations between the U.S. and Iran.
Goldman Sachs analyst Daan Struyven thinks flows of both crude and oil products out of the Persian Gulf are back to around 15 million to 16 million barrels per day, which is 7 million to 8 million barrels below prewar levels. Before the war, almost all of the oil in the Persian Gulf moved out of the strait to the Arabian Sea and then to Asia. Now countries are using several different routes to get their oil out.
Traffic through the strait is back to around 8 million to 10 million barrels per day, roughly half its prewar level, Struyven estimates. Many of the ships that are making it through are doing so at night with their tracking devices turned off, aided by the U.S. military.
Once they get through the strait, they often transfer the oil to other tankers ready to transport it to Asia.
"The rise in dark crossings by specialized shippers and in ship-to-ship transfers shows that producers and shippers are adapting to the Mideast conflict," Struyven wrote.
The other way countries are getting their oil out is by taking alternate routes around the strait, or to the Red Sea on the opposite side of the Middle East.
The bad news is that elevated shipping rates indicate that oil companies are preparing for the strait to remain at least partially closed into next year, Struyven writes. Until the war is fully resolved, the market may be in this uneasy equilibrium-enough oil is moving now to keep prices from spiking, but not enough is moving for prices to come down significantly.
Rebounding supplies from the Persian Gulf could keep gasoline prices from jumping in the near term, though consumers shouldn't expect much near-term relief at the pump.
For investors, it may also be time to change tactics. Because crude oil is now in this strange semi-equilibrium, Goldman analysts have been advising investors to turn to other products to hedge against geopolitical disruption. They recommend buying diesel futures as one hedge. Diesel prices have been more elevated than crude oil, because refineries making it in Russia, the Middle East and China are operating at reduced capacity amid the wars in Iran and Ukraine.
Goldman also expects liquefied natural gas prices to remain high, because LNG is in short supply around the world and Europe needs to stockpile more to prepare for winter heating season.
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