Gulf oil exports surge to 17m bpd, yet Brent tops $100

Summary

• Arab Gulf states shipped an average 17m barrels per day in September, the most since February.
• Iran's own exports have collapsed to 200,000 bpd, under a tenth of pre-war volumes.
• Higher flows have not cooled prices: Brent sits 43% above June, signalling an unresolved supply crunch.

The latest

Arab Gulf producers moved an average of 17m barrels per day of crude and refined products in September, shiptracker Kpler estimates, the strongest month since February and near the 21m pre-war level. Iran is shipping just 200,000 bpd. Yet Brent crude remains above $100 a barrel, 43% higher than in June when Washington and Tehran struck a temporary deal on lower volumes.

Details

• The Trump rejection: On September 26th President Donald Trump turned down an Iranian ceasefire proposal that would have reopened the Strait of Hormuz for seven days. Iran wants a deal because it is "losing so badly," the president said, and he and several advisers calculate that America gains more by waiting than by settling now.
• The volume picture: Kpler's 17m bpd estimate covers flows through Hormuz and barrels bypassing the strait by pipeline, leaving Gulf supply roughly 4m bpd below the 21m pre-war rate. Markets feared a similar shortfall after Russia invaded Ukraine, when Brent peaked at $129.
• How Saudi keeps flowing: Most Saudi oil now moves under American escort on state-owned tankers that shuttle through the strait, then transfers to other vessels in the Gulf of Oman. The United Arab Emirates uses similar tactics. Saudi officials concede the ship-to-ship scheme is costly, clunky and unsustainable, though they have set out no alternative.
• The Aramco sales: On September 28th Saudi Aramco invited Chinese refiners to bid for cargo loading next month, after selling more than 90m barrels across two rounds in the previous fortnight.
• Chinese demand rebound: China cut crude purchases by nearly 40% over the summer and is buying heavily again. Domestic stocks of jet fuel, diesel and petrol fell so fast that wholesale prices exceed government-capped retail ones, pushing refiners to run harder and import crude for re-export while foreign margins stay fat.
• The Iranian replacement: China must also replace the crude it once bought from Iran, forcing it onto the open market and lifting official prices. Dubai futures, tracking grades closest to Iranian oil, trade at $116. Chinese buyers are competing with Europeans for North Sea-like grades, dragging Brent up alongside.
• The spot signal: Dated Brent, tracking oil loading within the next few weeks, hovers near $124 a barrel, unusually far above Brent futures. Freight is not the cause: chartering rates are at record levels, but Brent futures are quoted free-on-board, pricing crude at loading rather than delivery. The gap points to a physical squeeze.
• The diesel squeeze: Limited Gulf flows and a Russian export ban have pushed wholesale diesel near $200 in major markets, with American pump prices near a record $6.50 a gallon weeks before the midterms. Trump favours restricting diesel exports, a prospect that has already opened a $12 gap between Brent and WTI.
• The mining threat: Iran has not disabled a tanker since September 23rd. Unverified reports claim it has laid new mines in the strait or is preparing to. Windward, a shipping-intelligence firm, detected 75 high-speed craft capable of deploying drifting ordnance swarming off the Omani coast on September 26th.
• Remaining targets: Iran retains the capacity to strike Gulf oilfields and energy facilities. Saudi Arabia's East-West pipeline, hit in early September and about to reopen, remains vulnerable, as do Saudi ports. The Houthis, Iran-backed rebels in Yemen, could further cripple traffic through Bab al-Mandab in the Red Sea.

Background

Washington and Tehran sealed a temporary deal in June, when export volumes ran roughly a quarter below today's and Brent traded 43% lower. Iran's exports have since collapsed to 200,000 bpd, while Gulf Arab shipments recovered through escorted convoys and pipeline routes around the strait.

Between the lines

The Economist argues that higher export volumes do not mean Hormuz is safer, only that the industry has adapted to operating under sustained risk. The escorted state-tanker system that restored Saudi flows is one Riyadh itself calls unsustainable, and the 4m bpd shortfall plus the $124 dated Brent print suggest the market is pricing that fragility rather than the September tonnage.

What's next

Watch Aramco's next Chinese bid round for October loading, the reopening of the East-West pipeline, any American decision on restricting diesel exports before the midterms, and whether Iran resumes tanker attacks after its September 23rd pause.

Source: The Economist, Kpler, Windward