For months, crude oil prices have been constrained by reports of improving tanker traffic in the Strait of Hormuz. Even after the June ceasefire between Iran and the United States collapsed, tankers moving in and out of Hormuz have been moving at rates higher than in the spring. This has now changed with the latest escalation in the chokepoint, sending Brent crude above $100 per barrel on Wednesday morning.
For months, analysts have been warning that Brent crude could surge to over $100 per barrel and stay there for an extended period of time. On Wednesday, Brent finally broke through that threshold for the first time since late July, as escalating fighting between U.S. and Iranian forces intensified concerns about oil flows from the region.
Reports of recovering crude oil flows out of the Persian Gulf were the main factor that kept a lid on prices. Per recent data, average daily outflows in early August stood at between 6 and 8 million barrels. Some, like Rystad Energy, put the average daily even higher, at between 8 and 9 million barrels as of late August. Yet that was before fighting between U.S. and Iranian forces resumed, slashing the daily flows to below 2 million barrels daily. The moving average stood at some 4 to 5 million barrels, again according to Rystad Energy, as quoted by Reuters earlier this week. Per Kpler, not a single very large crude carrier has exited the strait since September 2, the Reuters report also noted.
Meanwhile, fighting escalated this week, with the United States reporting it had destroyed five Iranian tankers in the Persian Gulf. In response, Iran attacked a U.S. base in Jordan. Brent crude jumped through $100 per barrel on Wednesday as neither side appeared willing to de-escalate.
Still, the worst predictions about oil prices have not yet materialized. The reason for this is that Middle Eastern producers have found alternative channels to send their crude abroad. In most cases, these are pipelines that carry the crude to ports outside the Strait of Hormuz. For the UAE, it is a pipeline to the port of Fujairah, right outside Hormuz. For Iraq, it is the pipeline that carries crude to Turkey and the Mediterranean coast. For Saudi Arabia, it was the East-West pipeline where flows were reversed to carry the crude to the Red Sea port of Yanbu—close to the Yemeni Houthis.
The Houthis entered the fray earlier this year, targeting Saudi vessels and energy infrastructure, with the latest attack on the Jizan refinery taking place earlier this week. Other refineries on the Arabian Peninsula have also come under attack, from Iranian forces.
While Brent has now broken above $100 per barrel, the question is whether prices can remain there—and potentially move significantly higher. The longer the war continues, the thinner the remaining lid on prices becomes. The reason it is becoming thinner is that the world is drawing on crude from inventories to cushion the price blow. These inventories are not bottomless.
In its latest monthly Oil Market Report, the International Energy Agency reported that, as of July, some 8.3 million barrels daily of oil production remained shut in across the Middle East. The IEA also reported that global oil inventories had dipped by 69 million barrels in July, adding to earlier draws, for an average daily rate of inventory decline of 2.7 million barrels daily. The draw will continue as the fighting in the Middle East continues—and this will keep pushing oil prices higher.
Many observers of a bearish persuasion like to point out that there is still plenty of oil in the world, both in storage and in production, so any hint of a de-escalation, not to mention the June ceasefire, has pressured prices. However, over a period longer than a couple of weeks, the trend in international oil benchmarks is quite clear: oil does fall, but it falls less and less sharply. This has made for a cumulative gain of close to $40 for Brent crude since September 2025. West Texas Intermediate has gained over $30 per barrel since September last year—and this is just the futures market. On the physical market, prices are higher.
Some crude blends are already over $100 per barrel. Murban crude is one of them, and the DME Oman benchmark is another. The OPEC basket is trading above $100 per barrel, and so is the Indian basket. Now, Brent futures have joined them above the psychologically important $100 threshold. This is not exactly bearish for prices going forward, especially in the absence of any reports pointing to the possibility of renewed peace negotiations between Tehran and Washington. This is bad news because demand for crude tends to rise in the final quarter of the year. There will be, of course, demand destruction because of prices, but this destruction tends to be limited due to the fundamental role of crude oil derivatives for economies. This suggests that prices could climb even higher—and stay there.
By Irina Slav for Oilprice.com
