J.P. Morgan analysts say Middle East oil export flows have staged a "remarkable recovery," with regional exports now just 11% below pre-war levels. Brent Crude has held above $100 a barrel even as crude flows near-normalize, a gap analysts say current risk premiums and inventory levels don't fully explain.
Middle East oil export arteries are flowing again, J.P. Morgan analysts said in a report, after the Saudi East-West pipeline was restored. The bank's commodities strategy team, led by Natasha Kaneva, said regional exports are now just 11% below pre-war levels.
The recovery is uneven, however. J.P. Morgan said crude flows have rebounded to 17.5 million barrels per day, or 98% of pre-war levels, while product exports remain at just three million barrels per day, or 58% of pre-war levels. India, described by the analysts as the largest nearby buyer, is already absorbing more of the recovered supply: its imports from the Middle East and "unknown origins" rose to 2.8 million barrels per day in September, up 1.2 million barrels per day from August.
Tanker rates stay near records despite the rebound
Tanker availability does not appear to be the binding constraint on sustaining flows through the Strait of Hormuz, the J.P. Morgan analysts said. According to the report, Hormuz-linked VLCC charter rates sit near $1.27 million a day, and five- to ten-year-old VLCCs are now valued above $150 million versus roughly $135 million for a newbuild. Saudi Arabia's Bahri fleet, ADNOC L&S, Kuwait's KOTC and Oman's Asyad have also helped sustain liftings as the spot market tightens.
Hormuz flows have nearly returned to late-June highs of nearly 13 million barrels per day, led primarily by Saudi Arabia, the analysts said. But they cautioned that higher crossings reflect the industry's growing ability to operate under sustained risk rather than improved safety.
HSBC flags a price gap the recovery doesn't explain
HSBC analysts, led by Kim Fustier, said Hormuz flow data continues to improve, helping keep a lid on oil prices around $100 per barrel. The bank estimates liquids exports through Hormuz are averaging about 10 million barrels per day, up from about six million barrels per day in early September.
Yet HSBC noted that when Middle East exports last approached pre-conflict levels during the June/July U.S.-Iran ceasefire, Brent fell to about $70 per barrel as a glut emerged. This time, Brent has stayed above $100 a barrel. According to HSBC: "We doubt that a $30 per barrel gap is explained by a higher risk premium". HSBC also pointed to tight physical markets, with Dated Brent trading about $17 a barrel above front-month ICE Brent and futures backwardation steep.
Macquarie strategists, meanwhile, said their base case has shifted to a slow, steady recovery in Middle East supply rather than a rapid resolution, pointing to a potential normalizing market in 2027 while acknowledging substantial uncertainty.
Source: Rigzone
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