NextFin News - Crude oil held steady near $106 a barrel on Monday as Middle Eastern producers pushed crude exports to their highest level since the war with Iran began in February, yet prices remain stubbornly close to 45% above where they traded before the conflict. The divergence is the story: shipments are recovering, but the market no longer believes the recovery is cheap, fast, or safe.
The Recovery Is Real, but the Price Refuses to Believe It
Crude oil exports from major Middle Eastern producers are set to reach 12.8 million barrels a day in September, the highest level since the war started, according to shipping data from Kpler. Saudi Arabia and the United Arab Emirates are driving the rebound, with Saudi loadings more than doubling to about 5.4 million barrels a day from 2.446 million in August. Flows through the Strait of Hormuz are recovering to around 7.4 million barrels a day, and 19 very large crude carriers - each holding roughly 2 million barrels of Saudi crude - passed through the chokepoint in a single week.
On the surface, this should be bearish for prices. Instead, Brent crude futures traded at $105.91 a barrel early on Sept. 29, up 63 cents, or 0.6%, while US West Texas Intermediate sat at $93.32, up 72 cents, or 0.8%. Brent is up $21 a barrel since the start of August and 45% above pre-war levels, according to the International Energy Agency. Before the war, in late June, Brent traded near $72.68 and WTI near $69.58. The combination of rising volumes and stubborn prices is the central tension this market is trying to resolve.
On the diplomatic front, US and Iranian officials spoke separately with mediators in a renewed push to end seven months of war, but no breakthrough emerged. That leaves traders balancing two competing truths: more oil is physically leaving the Gulf, but the path it takes is longer, riskier, and more expensive than before. And the market is pricing the risk, not just the flow.
There is a second, quieter reason the price refuses to fall. The export recovery is happening against a backdrop of deep production damage. Saudi crude production collapsed by 1.9 million barrels a day to its lowest monthly pace since 1990, while Iranian output fell by roughly 400,000 barrels a day in August to just above 2 million barrels a day, the lowest since 2020, as the US blockade continued to bite. Exports can be rebuilt from storage and from wells that are still flowing; production capacity that has been hit by strikes takes far longer to restore. The market knows the difference.
The Recovery Runs on Workarounds, and Workarounds Have a Price
The first question is why rising exports have not pushed prices back toward their pre-war lows near $70. The answer lies in how the oil is moving. Much of the September increase relies on workarounds such as ship-to-ship transfers and tankers switching off their transponders to avoid tracking - methods that are less efficient and more costly than normal operations.
"A clearer picture is emerging of higher oil export volumes leaving the Gulf, but much of that increase still relies on workarounds such as ship-to-ship transfers. Those methods are less efficient and more costly than normal operations, which is why crude prices remain elevated."
Tim Waterer, chief analyst at KCM Trade, added that the hope of a diplomatic settlement is itself a price cap: "That perennial hope of a deal is arguably the main factor preventing Brent from moving sustainably above $110 in the near term."
The physical rerouting tells the same story. Saudi Arabia has shifted export loadings from its Red Sea port of Yanbu to Ras Tanura on the Persian Gulf after attacks damaged its East-West pipeline. Ras Tanura shipments reached about 3.6 million barrels a day this month, up from 929,000 in August, but still well below the 6.411 million recorded in February. Even at the September pace, regional exports remain roughly 6 million barrels a day below February levels, when combined shipments from Saudi Arabia, the UAE, Iraq, Oman, Qatar, Kuwait and Iran reached 18.8 million barrels a day.
The takeaway is straightforward: this is not a supply recovery that restores the old cost curve. It is a supply recovery that adds a new cost layer - insurance, longer routes, transshipment fees, and escort risk - and that layer is baked into the price. A barrel shipped via a workaround is not the same economic barrel as one loaded through a normal terminal, even if both are counted identically in the export data.
The Market Is Pricing Refined Products, Not Just Crude
The second-order point most traders are missing is that crude export volumes are the wrong metric to watch. What remains severely disrupted is refined-product and LPG capacity. The IEA estimates that refined product and LPG exports from the Gulf remain nearly 60%, or 3.7 million barrels a day, below pre-war levels - a far deeper cut than the crude shortfall. That gap has pushed refinery margins to record levels in the Atlantic Basin.
In other words, the war has not just removed barrels; it has removed the ability to turn barrels into diesel, jet fuel, and gasoline at the scale the market needs. A barrel of crude leaving Ras Tanura does not replace a barrel of diesel that a European refinery can no longer source from the Gulf. This is the mechanism behind the sticky premium: crude is a necessary input, but refined products are the binding constraint. Until Gulf refining and product-export capacity comes back online, crude prices will stay elevated even as crude shipments normalize.
The inventory math reinforces the point. The US Energy Information Administration, in its September outlook completed Sept. 3, estimated that global oil inventories fell by an average of 3.9 million barrels a day in the second quarter and will fall by an additional 3.0 million in the third and 1.7 million in the fourth. In total, inventories have decreased by about 400 million barrels so far this year, and the agency expects them to keep falling through the end of 2026. Once storage is drawn down at that pace, even a full restoration of flows must first refill tanks before prices normalize.
The EIA's own price path shows how slowly it expects relief to arrive. It forecasts Brent to average around $90 a barrel in the second half of 2026, falling only gradually to about $74 in 2027 as production rises and inventories rebuild - and it explicitly warns that volatility in Hormuz flows and alternative routes "will likely lead to more volatility in short-term price movements than our forecast indicates." The agency's base case, in other words, still embeds a risk premium well above the pre-war norm.
Cyclical Disruption, Structural Premium
Is this a cyclical fluctuation that will revert, or a structural shift? The answer splits by layer, and getting it wrong flips the conclusion. The physical disruption is cyclical. War damage can be repaired, mines can be cleared, pipelines can be fixed, and transshipment workarounds can be abandoned once the strait is fully secure. Before the conflict, around 125 large commercial vessels passed through Hormuz daily, and the waterway handled about one-fifth of global daily crude and LNG supplies. That traffic can return - and the September data shows it already is.
But the price premium has become structural in the near term. A premium built on war risk does not unwind on its own; it unwinds only when the market believes the risk is durably priced out. Seven months of conflict, stalled diplomacy, and repeated attacks on shipping have taught traders that any recovery can be reversed within days. The market is no longer pricing the current flow rate; it is pricing the probability that the flow rate breaks again. That is why Brent can hold near $106 while exports climb - the market is paying for barrels that might get stuck, not just barrels that are stuck.
This distinction matters for the conclusion. A cyclical supply gap closes when barrels return. A structural risk premium closes only when confidence returns - and confidence requires a settlement, not just a ceasefire.
The historical record shows why confidence is slow to rebuild. After the 2022 Russia-Ukraine shock, oil prices fell back toward pre-war levels only once it became clear that Russian crude would keep flowing through alternate channels at a discount - a structural rerouting that the market could underwrite. The current situation is the inverse: flows are returning, but the route itself remains contested. A premium based on a contested chokepoint behaves differently from one based on lost barrels. The first can persist long after the second has healed.
The Counter-Thesis: The Premium Is Justified, and $120 Is Still in Play
The strongest case against the view that the premium is overstated comes from the inventory drawdown and the escalation risk. Goldman Sachs has warned that oil could rally to as much as $120 a barrel if attacks on shipping in the Middle East intensify, with Daan Struyven, co-head of global commodities research, saying the risk of shipping disruptions "broadening and intensifying is an important one." The bank also sees oil falling to $80 if exports return to normal levels - a wide range that itself signals how binary the outcome is.
From this vantage point, the current premium is not excessive; it is a rational hedge against a supply shock that could deepen at any moment. The EIA's forecast of continued inventory draws through the fourth quarter supports the bearish-supply view: if demand holds and Gulf flows stall again, the market could find itself far tighter than today's export figures suggest. Brent has already traded within a whisker of $120 once this year, peaking at $114 on May 4, so the bull case is not theoretical - it has already been tested.
This argument is serious, but it rests on a specific assumption: that the disruption worsens rather than improves. If exports continue to climb toward February levels and diplomacy produces even a framework for demilitarized transit, the inventory drawdown gets refilled faster than the bull case assumes. The premium is a bet on continued disorder; the bear case is a bet on gradual, messy normalization. Both are defensible - which is exactly why the market is stuck in a wide band rather than trending cleanly in one direction.
There is also a demand-side counterweight that the bull case must contend with. Chinese refiners, facing weaker domestic margins, have been slower to absorb high-priced barrels, which is one reason prices are not higher still. If Chinese demand softens further while Gulf exports keep climbing, the premium could compress from the demand side even if the supply risk never fully resolves. The market is not simply choosing between war and peace; it is balancing a war premium against a demand question that no ceasefire can answer.
The US Policy Response Adds Another Layer of Uncertainty
A third force shaping the market is Washington's response to record fuel prices at home. The White House is considering regulatory relief that would allow broader sales of red-dyed diesel - fuel normally restricted to off-road and agricultural use - which could let some buyers avoid the federal fuel tax and ease pump prices. Separately, lawmakers have pushed for a temporary ban on US diesel exports, a proposal Energy Secretary Chris Wright has called unworkable because refineries cannot simply stop making diesel while continuing to produce the same amount of gasoline.
The policy debate matters for oil because it signals how much political pressure is building as diesel prices hit record levels. A red-dyed diesel release would offer limited, targeted relief without distorting global trade; an export ban would cut US prices briefly but raise them in Europe and force refiners to cut crude runs, ultimately pushing gasoline prices higher. The fact that the administration is weighing the former over the latter suggests it understands the global nature of the problem - but it also means the political clock is ticking on any diplomatic solution.
What to Watch and Who It Hurts
The practical implication is asymmetric. Refiners and trading houses with access to non-Gulf barrels, US diesel exporters, and producers outside the conflict zone benefit from the persistent premium and record refining margins. Consumers of diesel and jet fuel - airlines, trucking, and industrial users - are the exposed side, and they will stay exposed as long as product capacity lags crude recovery.
Short term, over the coming weeks, prices will track diplomatic headlines. Any credible sign of a US-Iran framework will knock the risk premium out of Brent quickly; any attack on a tanker or escalation at Hormuz will push it back in. The market has already shown it reacts to both directions within single sessions.
Medium term, over the coming months, the direction depends on refined-product capacity, not crude loadings. Watch Gulf LPG and product-export volumes: if they recover toward pre-war levels, the Atlantic Basin refining-margin trade unwinds and crude follows lower.
Long term, the premium only fully exits when Hormuz traffic approaches its pre-conflict norm of roughly 125 vessels a day and Saudi Ras Tanura loadings sustainably exceed 6 million barrels a day. Until then, the market treats every recovery as reversible.
Two signals would prove this judgment wrong. First, if Brent fails to hold $100 a barrel while Hormuz transits exceed 100 vessels a day and Ras Tanura loadings top 6 million barrels a day for two consecutive weeks, the structural-premium thesis is broken - the market would be telling us the risk is priced out even without a diplomatic settlement. Second, if global oil inventories stop drawing while Gulf product exports remain 40% below pre-war levels, the refined-product scarcity thesis fails and the crude premium loses its anchor.
The base case is for Brent to trade in a wide band - elevated by the product bottleneck, capped by the perennial hope of a deal. The market is not paying for barrels that are stuck. It is paying for barrels that might get stuck. Until the strait is safe, not just open, that premium is the real price of oil.
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