Oil exports from the Persian Gulf have rebounded significantly, at times returning to and even surpassing their prewar volumes. But prices for the global benchmark Brent have once again climbed to around $110 a barrel, a level last seen in late April when exports were about half of what they are now.
The price rally reflects fears of renewed escalation, dwindling oil stockpiles and a makeshift shipping system that remains dangerous and expensive to operate, according to traders and analysts.
"What is the price of oil? Eight months into the war with Iran, what should be a straightforward question has become surprisingly hard to answer," said Natasha Kaneva, head of the global commodities strategy team at JPMorgan. Kaneva's model puts Brent's fair value at $94 a barrel, much lower than what the benchmark is trading at now.
On Wednesday afternoon, the most actively traded Brent futures contract was trading at $111 a barrel.
The stubbornly high oil prices offer little hope for drivers looking for relief at the pump. As of Wednesday, regular gasoline averaged $4.25 a gallon in the U.S., according to AAA. American gasoline prices have eased in recent weeks, but have largely stayed above $4 a gallon since April.
Pricing in U.S. escalation
Investors worry the U.S. could resume strikes on Iran after next week's midterm elections, potentially triggering another round of disruptions to Middle East oil supplies.
That possibility is much more real now than in April and May, when a ceasefire was in place and the U.S. and Iran were inching toward a peace deal. Five months later, the U.S. has told several Gulf Arab countries to be prepared for a short, intense military campaign after the U.S. midterm elections, The Wall Street Journal reported.
Goldman Sachs estimates that fears of renewed supply disruptions have added about $27 a barrel to Brent's price as traders are demanding more to accommodate heightened risk. The bank says refiners are buying oil while supplies are available and investors are buying oil futures to hedge against an energy shock.
Strait of Hormuz attacks add to costs
A record number of commercial shipping attacks near the Strait of Hormuz this month has made the recovery of Middle East oil exports both fragile and costly. Persian Gulf oil exports, including shipments through Hormuz and alternative routes across the region, have recovered to more than 24 million barrels a day in the week through Oct. 18, surpassing prewar levels of 23.3 million, according to ship tracker Kpler.
But that level of exports is hard to sustain. Persian Gulf exports fell to at least 15.7 million barrels a day in the week through Oct. 26.
"This recovery has coincided with a sharp deterioration in maritime security as vessels remain exposed to attacks and insurance and freight costs have risen sharply," said Giovanni Staunovo, commodities strategist for UBS.
On Tuesday, Iran's Persian Gulf Strait Authority -- a newly established agency that demanded shipowners register with it to transit the Strait of Hormuz -- singled out South Korea's shipping company Sinokor, warning it would take unspecified legal action against all Sinokor vessels starting Nov. 1. That would deal a blow to Middle East oil flows. In the past three months, vessels owned by Sinokor accounted for more than one-fifth of the confirmed and identified tanker traffic for crude and oil products in and out of the Strait of Hormuz, according to Kpler.
Attacks on tankers and infrastructure, including a vital Saudi Arabia pipeline, have forced exporters to reroute shipments through alternative pipelines and rely heavily on ship-to-ship transfers. Shipping crude from the Gulf to Asia cost nearly $36 a barrel in early October, more than five times prewar levels, according to the International Energy Agency, a Paris-based intergovernmental energy watchdog.
Analysts have debated whether high freight costs are indirectly pushing Brent prices higher.
Thinning buffer
The world has far less protection against another supply interruption. Global on-land oil inventories that could be readily drawn and used were near their lowest since at least 2016, according to the latest figures from the IEA.
That means that while exports from the Middle East may be rising, total supply to the market, including those to domestic refineries, is still below last year's levels, analysts at Morgan Stanley wrote in a note.
China returns
China, the world's biggest oil importer, earlier this year slashed its monthly crude imports to their lowest levels in years.
By slashing imports by three million barrels a day in May and June -- roughly equal to the combined daily oil consumption of Italy and France -- China was instrumental in holding down oil prices.
But China has increased its oil imports since hitting a bottom in June.
Ship-tracking data suggest Beijing's October imports rose further from September, a reminder of "how China's buying behavior can move the needle in the global oil market," said Kieran Tompkins, a commodities economist at Capital Economics.
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