Hormuz crude flows return to prewar levels as fuel lags

Middle East crude oil exports have climbed back to roughly their prewar levels, seven months into the U.S.-Iran conflict. Saudi Arabia has rerouted barrels, and U.S. military escorts are protecting tankers that carry oil through the Strait of Hormuz. Refined fuels have not recovered at the same pace, though. That shortfall is keeping diesel markets tight and oil prices high.wsj+2

Data from the tracking firm Kpler, published Wednesday, showed crude moving through Hormuz at a seven-day average of 13.5 million barrels per day as of Monday. That matches the prewar baseline. Region-wide crude shipments averaged 19.5 million bpd, above the roughly 17 million bpd seen before the war. For September as a whole, Middle East crude exports reached 16.328 million bpd, the highest since the war began on Feb. 28. The monthly total was still about 3.2 million bpd below February's level. StoneX analyst Fiona Cincotta called the rebound "really quite remarkable" given that fighting is still going on.cnbc+2

Rerouting and escorts

Saudi Arabia has restarted its East-West Pipeline, which had been shut after a drone strike last month, and has resumed tanker loadings at the Red Sea port of Yanbu. The kingdom's crude exports rose from 2.446 million bpd in August to about 5.4 million bpd in September, according to Kpler. About 40% of Gulf crude now goes through pipelines that bypass Hormuz, up from 17% before the war.reuters+2

More than 70% of the crude that crossed Hormuz in August was moved by shuttle tankers and then transferred to other ships off the UAE or Oman. The U.S. military protects these shuttle runs. "It's very expensive, and it's a huge U.S. military commitment," said Helima Croft of RBC Capital Markets.cnbc

Fuel shortfall persists

Refined products shipped through Hormuz averaged 677,000 bpd as of Monday, compared with 3.6 million bpd before the war, Kpler data showed. The "crude market has largely normalized even as refined product supplies remain constrained," said Natasha Kaneva of JPMorgan ↘ 0.24%. U.S. diesel hit a record $6.53 a gallon last week. Distillate stocks fell by 2.3 million barrels, according to the Energy Information Administration.investing+1

Oil steadied on Thursday after gaining in the previous session. Brent traded near $98 a barrel and West Texas Intermediate near $90. Gulf stock markets were subdued, with Saudi Arabia's Tadawul All Share Index edging lower.bloomberg+1

Diplomacy unresolved

Iran said Wednesday it had received a U.S. response to its proposal for restoring a ceasefire. President Donald Trump had indicated days earlier that he rejected the plan. An official briefed on the talks told Reuters the main disagreement is over the order in which steps would be taken. Iran's Revolutionary Guards said a "military conflict" is still under way in the strait.aljazeera+1

"The direction of travel is toward escalation," said Scott Modell, CEO of Rapidan Energy.cnbc