Oil Exports Are Back to Prewar Levels. Why Aren't Oil Prices?

According to Kpler's vessel-tracking data, the seven-day average of Gulf crude exports reached about 18.3 million barrels a day by the end of September, slightly above the prewar 12-month average of 18 million barrels a day. Yet Brent crude prices remain elevated. If export volumes have recovered, why have prices struggled to return to prewar levels?

Export volumes have recovered, but shipping patterns have changed

The figures show that export volumes have recovered, but prewar transport patterns have not. Some crude is being rerouted, shipped through alternative ports, or transferred between vessels at sea. Crude shipments through the Strait of Hormuz are running at only around 80% of their prewar level.

As transport patterns change, so does the cost structure of crude oil. This is a key reason why prices have not fallen alongside the recovery in export volumes.

Alternative routes are not yet fully in place

In late September, TotalEnergies' CEO disclosed that Saudi Arabia was advancing plans for an oil pipeline to Duqm in Oman. Consultancy Rystad Energy estimates that the pipeline would be around 1,000 kilometres long. The project is still at the feasibility-study stage.

Meanwhile, a second parallel oil pipeline to the port of Fujairah in the United Arab Emirates is under construction and is scheduled to enter service next year.

Until these alternative routes provide reliable transport capacity, markets cannot be confident that export costs and risk premiums will return to their former levels.

Why are more alternative routes needed?

The reason is straightforward: existing alternatives are imperfect. Saudi Arabia's East–West Pipeline is an important export route that bypasses the Strait of Hormuz, but a pumping-station failure caused it to shut down in September.

If a backup route has vulnerabilities of its own, its reliability is diminished. For producing countries, the challenge is not merely to build pipelines. It is to establish dependable crude export routes with sufficient redundancy.

This temporary export configuration is also becoming embedded in market pricing. On October 5, Intercontinental Exchange, or ICE, introduced tanker forward freight agreements based on routes outside the Strait of Hormuz, covering voyages originating in the Gulf of Oman and West Africa. The introduction of these contracts indicates that freight benchmarks themselves are being rebuilt.

The crude export system is holding back a decline in oil prices

When crude is shipped along more expensive routes, the additional costs ultimately feed into oil prices and the prices of some other commodities that are particularly sensitive to transport costs.

The central issue is therefore not supply, but whether export routes can become stable and reliable again. The Gulf's crude export system has yet to regain its former combination of low costs and high reliability. Transport risk premiums continue to support oil prices, making a return to prewar levels difficult.

The disappearance of that premium cannot be pinned solely on new backup pipelines. It depends on whether the original export routes and their alternatives can work together reliably, allowing the Gulf's export system as a whole to return to normal operation.