Standard Chartered warns markets now pricing in prolonged US-Iran conflict

Standard Chartered Bank's energy research head Emily Ashford warned on Tuesday that market expectations are shifting toward a prolonged U.S.-Iran conflict, as two developments — the postponement of planned Hormuz shipping talks and damage to Saudi Arabia's East-West pipeline — have eliminated near-term prospects for de-escalation.rigzone

Ashford said the bank expects Brent crude to "remain supported in triple-digits territory" but cautioned that "geopolitical headlines are likely to continue to drive sharp corrections in both directions," with the geopolitical risk premium set to stay elevated.rigzone

Pipeline Shutdown Squeezes Supply

The East-West pipeline, which carries crude across Saudi Arabia to the Red Sea port of Yanbu, was shut down on September 10 after multiple drone attacks from Iraq struck the line in the Riyadh and Medina regions. With a capacity of roughly 7 million barrels per day, the pipeline had become the primary route for Saudi oil exports to bypass the Strait of Hormuz, where the U.S.-Iran conflict continues to disrupt shipping.finance.yahoo+2

Saudi Aramco has since pivoted to selling prompt spot cargoes from the Gulf of Oman on a ship-to-ship basis, moving about 20 million barrels to Asian refiners for September and October pickup, according to Reuters. But the kingdom has also reportedly told European buyers that some September cargo loadings from Yanbu will be canceled.ttnews+1

Physical Market Prices Surge

The squeeze is most visible in the physical oil market. Saxo Bank noted on Wednesday that Dated Brent surged above $130 per barrel as physical-market traders priced in near-term supply shortages. Oman crude futures climbed to $132.09 per barrel, with the premium over Brent widening to nearly $24. Abu Dhabi's Murban crude traded near $124 per barrel, its highest since the early days of the conflict.moomoo+1

Brent futures, meanwhile, eased slightly on Wednesday ahead of the Federal Reserve's interest rate decision, trading around $108 after settling near $109 on Tuesday.morningstar+1

Broader Risks Mount

The oil market faces pressure from multiple directions. Houthi forces have seized territory in Saudi Arabia and threatened to blockade Saudi oil tankers transiting the Bab el-Mandeb Strait. Ukrainian drone strikes on Russian refineries have prompted Moscow to ban fuel exports. And Libya's National Oil Corporation suspended production at two fields after militia protests.finance.yahoo

"Crude remains caught between slowing consumption expectations and a physical market with limited room for further disruption," Zaye Capital Markets chief investment officer Naeem Aslam said.rigzone