Middle East oil price war heralds post-conflict glut: Bousso
USO•Middle East crude exports recovered to 16.6 million barrels per day in October, close to pre-war levels, while global production rose to 85 million bpd. Gulf producers are cutting prices as recovering supply, constrained refining capacity and depressed demand raise the prospect of a post-conflict glut.
1. Exports rebound
Crude exports through the Strait of Hormuz averaged 10.3 million barrels per day in October, up from virtually zero in the war’s first month, excluding Iranian shipments. Including alternative routes, regional crude exports reached 16.6 million bpd, just below the pre-war average of 17 million bpd. Production outside the Middle East, particularly in the US, Brazil and Canada, has also increased; global crude production reached 85 million bpd in October, above the five-year average of 83 million.
2. Price competition grows
Saudi Arabia cut its December price for Arab Light crude to Asian customers by $2 a barrel from November, setting its discount to the Oman/Dubai average at $6.50, the lowest since May 2020. Oman’s premium to Dubai fell from $34 a barrel in mid-September to 95 cents last Tuesday. Higher freight costs, including shipping costs averaging around $30 a barrel versus roughly $5 before the war, contribute to discounts, as producers compete for buyers amid limited refining capacity and depressed demand.
3. Glut remains uncertain
The article says oil demand could rebound if lower prices revive consumption that was delayed rather than permanently lost; JPMorgan estimates global consumption has fallen around 3.3 million bpd since the war began. Refineries could return sooner than expected, while renewed fighting could curb supply. Conversely, a durable US-Iran settlement could lower freight and security costs and allow more Gulf crude onto a market already supplied by producers that boosted output.
