Oil prices surged, with ICE Brent settling more than 6% higher. In early morning trading today, prices neared $110/bbl. Oil’s resilience reflects a market now repricing both the duration and severity of the conflict, along with a clearer recognition of the mounting threat to regional supply. And while meaningful volumes are still moving through the Strait of Hormuz, flows remain well below pre‑war levels, underscoring how fragile the situation has become. Saudi energy infrastructure and crude oil exports from the Red Sea are increasingly at risk, with the Houthis in Yemen targeting Saudi Arabia. As the Houthis have taken control of the Red Sea port of Mokha in Yemen, recent events increase the threat to shipping around the Bab al-Mandeb Strait.
Another market concern will be the August production numbers Saudi Arabia reported to OPEC. The latest monthly report shows Saudi Arabia produced 6.24m b/d, the lowest level since the 90’s. Saudi Arabia did supply more to the market than it produced. The producer supplied 7.12m b/d to the market, suggesting that it relied on inventory over the month. Meanwhile, secondary sources show Iraq increased supply by 664k b/d MoM to 3.38m b/d in August.
These renewed supply concerns coincide with stronger Chinese buying in the physical market. Independent refineries in China have been steadily increasing run rates after bottoming in July. Data from JLC shows independent refiners running at almost 63%, up from 45% in July. State refiners increased runs over this period. Signs of increased buying appetite from China will concern markets. China has helped the market since the start of the war by reducing imports.
The latest EIA inventory data show US commercial crude oil inventories fell by just 391k barrels last week. After accounting for SPR releases, total US crude oil inventories declined by 1.64m barrels. In a sign of relief to refined product markets, gasoline and distillate stocks increased by 1.27m barrels and 2.09m barrels, respectively. US refineries continue to operate near capacity amid strong margins on offer, with many choosing to defer maintenance season.