Stable oil exports and other factors should cause the price of oil to fall. But it is climbing to a five-month high. What keeps the price up?
High diesel prices are driving demand for crude oil and keeping physical market prices high, although Gulf crude exports were above pre-war levels last week, according to Kpler.
According to Goldman Sachs, the cost of transporting oil has increased sevenfold. The average freight rate for crude oil is more than $20 a barrel, up from $3 a year ago.
Shipping is turning to expensive emergency solutions; Tanker capacities are becoming scarce.
The G7 countries, together with the International Energy Agency, want to release up to 100 million barrels of emergency reserves within four months. But that doesn't create any additional supply, it just accelerates the delivery of a package of 400 million barrels that was decided on in the spring.
Frankfurt. Brent oil prices rose more than three percent to over $112, their highest in more than five months, following drone attacks on a Saudi oil field that killed two people.
The operation of the oil field was not affected, as the Saudi Energy Ministry announced. But the renewed attacks by the Houthi rebels confirm the risk of further escalation. According to figures from the British authority UK Maritime Trade Operations (UKMTO), attacks on tankers have also increased: there have been 32 incidents since the beginning of the month, compared to 16 in the whole of September.
Nevertheless, oil supplies are normalizing: according to data from Kpler, crude oil exports from the Gulf region were now even above pre-war levels last week. For the whole of October, the data analyst puts exports at more than 80 percent of the level before the outbreak of war.
That should actually have a dampening effect on the price of oil. And there is further news that should actually bring the price down: The International Energy Agency (IEA) has announced that it will release further emergency reserves at an accelerated pace. And the USA has relaxed diesel sanctions against Russia.
So why can't this calm the oil market?
The weak point no longer lies with crude oil, but with refined products. Diesel in particular is becoming increasingly expensive. A ton of diesel precursor gas oil is traded on the ICE Europa futures exchange at over $1,450 per ton, two and a half times higher than at the beginning of the year.
The European diesel crack spread, i.e. the price premium of diesel over Brent crude oil, is above $84, higher than during the 2022 energy crisis.
These high processing margins provide a huge incentive for refineries to purchase every available barrel of crude oil and process it immediately. The diesel shortage itself is becoming a driver of crude oil demand and is keeping prices on the physical market extremely high. Prices for short-term oil are now well above the benchmark Brent futures contract for delivery in two months.
The price for a barrel of Brent would no longer do justice to the extent of the supply crises, oil expert Jeff Currie, founder of the investment firm Real Macro, told Bloomberg. “The contract no longer has anything to do with the real world.”
Transport costs sevenfold
Oil shipments from the Gulf region may have returned to normal, but the cost of transportation is now extremely high.
According to analysts at Goldman Sachs, global oil transportation costs have increased sevenfold. The average freight rate for transporting crude oil has risen to more than $20 per barrel, compared to $3 a year ago.
In order to bring oil to the world market, shipping is increasingly turning to expensive emergency solutions. In the Persian Gulf, crude oil is sometimes transported through the Strait of Hormuz at night and with transponders switched off and then transferred to larger tankers.
High export volumes do not necessarily mean lower risks, writes Arne Lohmann Rasmussen, chief analyst at Global Risk Management. “Shipping remains vulnerable to attack, while exceptionally high freight rates and insurance premiums make transporting oil more expensive.” In addition, the news that export volumes are back to pre-war levels could encourage Iran to further escalate.
Tight tanker capacity
Due to ship transfers and extended routes, tanker capacity is becoming increasingly scarce. Washington is considering making additional ships from the so-called shadow fleet usable for the regular market. The shadow fleet consists of hundreds of mostly older tankers that transport Russian oil bypassing sanctions and price caps. But high compliance hurdles, existing contracts and the age of many tankers slow down the effect.
Another measure by the US government that was intended to calm the market for oil and oil products fizzled out: In view of record high fuel prices, US President Donald Trump surprisingly announced that he would allow Russian diesel imports again and would suspend new sanctions for the time being.
The plan was to gradually release Russian diesel quantities from 300,000 to 500,000 tons per month - a move that met with sharp criticism both in the US Congress and from European allies. Especially since the quantities are manageable compared to global consumption.
Easing sanctions brings little relief
Meanwhile, the first Russian diesel deliveries following the easing of sanctions and the lifting of the Russian export ban are already on their way to destinations such as Turkey and Brazil. However, according to Rasmussen, this only amounts to around 210,000 tons of diesel, which corresponds to about one day of US diesel exports.
Russian refining capacity remains impacted amid Ukrainian drone attacks. According to Bloomberg, diesel deliveries from Russia have collapsed by over 80 percent compared to pre-war levels.
Russia is producing around two million barrels less diesel because of the Ukrainian attacks. About the same amount is also missing from the Middle East. According to the IEA, three million barrels of refinery capacity from the Middle East were lost at peak.
In addition, although oil flows from the Middle East have normalized, exports of refined products have not, which in September were 73 percent below pre-war levels, according to price reporting agency Argus Media. “The main reason for this is logistical constraints,” explains Sarah Raffoul, senior oil products analyst at Argus. For refined products such as diesel, reloading from ship to ship is much more difficult, as quality requirements and the risk of contamination would make this process much more difficult.
Market could remain extremely tense in 2027
And the diesel shortage is likely to continue for the time being. Analysts at Morgan Stanley expect the markets for oil products to remain extremely tense until at least mid-2027, even if current war-related disruptions ease.
According to Morgan Stanley experts, the outages are likely to increase by 3.4 million barrels per day by the second quarter of next year. This is because refineries have postponed their maintenance work in order to benefit from the high margins. However, the work “could not be postponed indefinitely,” write the analysts.
The IEA reserve releases are also unlikely to provide relief - neither on the market for oil products nor for oil. The G7 states, together with the IEA, want to bring up to 100 million barrels of emergency reserves onto the market within four months, including around 50 million barrels of diesel and around 40 million barrels of crude oil from the USA.
But the measure does not create any additional offer. It merely accelerates the delivery of a reserve package of 400 million barrels that was decided on in the spring, of which around 325 million barrels have been called up.
Inventories 500 million barrels below pre-war levels
In addition, oil reserves will soon be exhausted. At the end of September, global oil inventories were already around 500 million barrels below pre-war levels, as Bloomberg reports. Onshore stocks are at their lowest level since at least 2016, according to the IEA. The US emergency reserve is at its lowest level since 1982 and is approaching the critical level of 252.4 million barrels, above which non-emergency withdrawals are prohibited.
Against this background, many analysts have revised their oil price forecasts upwards, such as UBS, which sees a Brent price of around $100 per barrel for the current quarter. Bank of America also raised its forecast for this quarter from $83 to $95 per barrel. According to the two banks, if the conflict escalates further and further infrastructure is destroyed, price jumps to over 150 US dollars per barrel cannot be ruled out.
