By Mark Jaffe, EUCI energy writer
Improving crude oil shipments through the Strait of Hormuz are not large enough to stem declines in global oil inventories, setting the stage for high oil prices even after the Iran War is settled, according to Enverus Intelligence Research.
Oil inventories will continue to decline in 2026, and as result, Enverus projects Brent crude price per barrel to average $100 this year and throughout 2027.
The price problem is compounded by the loss of 700 million barrels a day of refining capacity from the wars in Iran and Ukraine – complicating the market’s ability to rebalance the price of fuels, especially diesel.
Before the war, approximately 20 million barrels of oil a day were moving out of the Middle East primarily through the Strait of Hormuz. Enverus estimates that about two-thirds of that volume is now reaching global markets.
About half is going through the strait, pipeline exports have increased as have shipments through the Red Sea.
“But it is very volatile in terms of the volume per day,” said Kyle Bertamini, an Enverus principal analyst. “We’re continuing to see attacks on both oil tankers as well as other vessels. So, there’s still a lot of disruption and uncertainty in the region.”
One way consumer countries have attempted to deal with the uncertainties and price shocks has been to release oil and refined products from their strategic petroleum reserves (SPR).
When the war began, the International Energy Agency (IEA) coordinated a pledge from nations to release 400 million barrels of oil from reserves. By October, about 330 million barrels had been released.
The U.S. released roughly about 133 million barrels from its SPR as part of the IEA agreement. Congress has authorized a release of another 35 million barrels.
In early October, European countries agreed to release 100 million barrels, with two-thirds of it refined products such as diesel fuel.
The impact of the wars on diesel refining and prices has been particularly severe. The seven million tons of refinery capacity lost – five million from Russia and two million from the Middle East – account for about 7% of the global total capacity.
In the U.S., diesel prices reached $6.32 gallon at the end of September, two-and-a-half times more than a year earlier, according to the federal Energy Information Administration.
A key problem is that much of diesel demand is “inelastic” or not sensitive to price changes, Bertamini said.
“We’re seeing inventories for refined products to continuing to decline quite sharply, and with that, it is driving up the price,” Bertamini said. “You know, even you know, well beyond on a relative basis, the rise in crude.”
“We would expect that the diesel price remains quite elevated, well through the end of this year and into next year,” he said.
However, releasing oil from strategic petroleum reserves is a bit like stealing from Peter to pay Paul, as eventually the reserves will have to be refilled. That will have its own impact on the market, keeping prices high longer.
“The story overarching all of this is that that SPR buffer is really on its last legs,” Bertamini said. “The SPR that people have the ability to push to the market is largely done.”
“It’s a little bit of a balancing act, where you might be helping manage the market right now by pushing some of those barrels to the market today, but be it in six months or 12 months or whenever the countries begin to refill, it’s just going to help support prices longer as the SPR refill is really just a slow demand sink down the road,” Bertamini said.
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