More than eight months into the Iran war, smoke continues to billow from oil tankers as Tehran presses ahead with repeated attacks near the Strait of Hormuz. And yet there’s more than enough crude on the global market. Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, said it pumped 10.5 million barrels a day in October, a level reached only once since 2022.
Iraq and Kuwait also reported big increases, while the United Arab Emirates is now free of OPEC quotas, allowing it to pump as much as it wants. Gulf shipments nudged lower this week, but remain healthy despite a slew of attacks, according to TankerTrackers.com Inc.
The ample supply has added to pressure on oil prices. Futures at one point this week were down almost 25% for the month, easing inflation concerns and offering respite for the global economy. Prices for physical cargoes have also plummeted, as producers compete for customers and exorbitant shipping costs begin to thaw.
The recovery is still precarious. Attacks have killed at least one seafarer this month and spilled oil is washing ashore on the region’s beaches. With shipping under constant threat and Iranian media claiming attacks on navigational equipment near Hormuz, oil flows are erratic and could slow at any moment.
But Emirati officials at a recent conference in Abu Dhabi were keen to stress the resilience of the industry. That ability to keep crude flowing, mirrored across the Gulf, has helped bring West Asia shipments back toward pre-war levels and pushed Brent crude prices below $90 a barrel at one point this week.“For us national shipping companies, there is no choice,” Khalid Alhammad, president of ship management for Saudi vessel owner Bahri, said at a conference in Dubai.
“We still have to go through the Strait of Hormuz. We have to keep moving the energy.”It’s a remarkable turnaround from some of the worst fears at the outset of the war. Before the conflict, about a fifth of the world’s oil flowed through Hormuz, and analysts warned that a closure could send crude prices above $200 a barrel.
Last week at Adipec, the West Asia’s biggest oil conference, senior executives agreed that crude markets look well supplied heading into 2027, with further price declines potentially easing the fight against inflation, though efforts to rebuild stockpiles depleted during the war could limit how far they fall.
The recovery reached a milestone Friday, when the International Energy Agency said oil supply was outpacing demand for the first time since the war began. Rising production beyond the Gulf has helped cushion global markets, with weekly US crude output topping 14 million barrels a day for the first time and the latest figures from Brazil and Guyana all at records.
Fuel prices remain far higher than crude, with European diesel trading at about $170 a barrel, for example. Shipping costs are also still historically elevated. Transporting crude from the US to Asia adds roughly 20% to the price of American oil, more than double the premium a year ago.
Yet even those strains have eased. Freight markets remain elevated, but are well below the extremes seen a month ago. US retail gasoline prices have also fallen below $4 a gallon for the first time since July, according to the American Automobile Association.“The return of supply from the Gulf has depressed prices, coupled with the deflation of the freight bubble,” said Sasha Foss, an analyst at Marex Group’s CSC Commodities.
“The market is less stressed than it was, but October was the biggest month for vessel incidents in Hormuz, so there are still risks.”The rebalancing has come at a cost. Vitol Group, the world’s top independent oil trader, said recently that the Iran war has cut global oil consumption by about 3 million barrels a day, an assessment echoed by other major traders.
The market, in other words, is finding its footing partly because the war has sharply curtailed demand across fuels and regions. China’s crude imports fell about 15% from a year earlier to 9.9 million barrels a day in October. European nations have reported double-digit declines in diesel demand, while US gasoline consumption was marginally lower than a year earlier during the peak summer driving season.
The supply recovery began in earnest over the summer and has gathered pace since then. It shows up in a steady uptick in ship-to-ship transfers in the Gulf of Oman, as traders unload cargoes onto new ships just outside Hormuz as part of a burgeoning shuttle trade.
It has left traders with plenty of cargoes to sell. This week, Abu Dhabi National Oil Co. slashed the price of its flagship crude grade to attract buyers. Saudi Arabia also cut its key oil prices, though the kingdom is selling fewer barrels under long-term contracts than before the war, making its pricing harder to track.
Instead, it has increasingly turned to ad hoc sales. The cuts underscore just how much oil is leaving the Gulf, even as tankers remain under attack.“The workarounds and the shuttle system have managed to keep these prices from going sky-high,” said John Kilduff, partner at Again Capital.
“There’s a question of durability. We’ve gone through a period where the Iranians didn’t cause much havoc in the Strait. But lately, that’s ramped up again, and there’s a concern that this could go off the rails.”