Brent crude prices are up more than 60 percent compared with pre-war levels, despite rebound in supply.
Oil flows out of the Gulf have increased substantially, easing the huge supply disruption caused by the United States/Israel war on Iran.
Crude exports from the Gulf averaged 24.6 million barrels per day (bpd) in the week to October 18, exceeding the pre-war average, according to market intelligence firm Kpler.
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Brent crude, the global benchmark, is trading at its highest prices since April, up more than 60 percent compared with before the war.
On Friday, Brent crude front-month futures – contracts for oil deliveries in December – rose more than 2 percent to briefly top $117 a barrel.
The climbing prices reflect anxiety about the possibility of renewed hostilities in the US war on Iran, dwindling oil stocks, and the increased costs of transporting supplies out of the region, according to market analysts.
“The market is doing exactly what it is supposed to do: It is telling us there is plenty of prompt oil, but there is no end to this war in sight – in fact … escalation is very likely,” Adi Imsirovic, a lecturer in energy systems at the University of Oxford, told Al Jazeera.
“Therefore, futures markets reflect that expectation,” Imsirovic, a veteran oil trader, said.
Oil producers have become increasingly adept at responding to the volatile climate in the Middle East to keep supplies flowing.
Facing the threat of Iranian attacks on shipping in the Strait of Hormuz, shipping lines have established a shuttle system involving ship-to-ship transfers off Oman and the United Arab Emirates to reduce the distance any one vessel must travel in perilous waters.
Shuttle boats carry the oil through the strait and load it onto waiting tankers once they are out of the danger zone.
In August, more than 70 percent of the crude that crossed the strait did so via ship-to-ship transfers, according to Kpler.
Oil producers have also ramped up exports that bypass the strait altogether via Saudi Arabia’s East-West pipeline, which carries oil supplies from its eastern oil fields to its Yanbu port on the Red Sea in the west, and the United Arab Emirates’ Habshan-Fujairah pipeline.
As of September, 40 percent of exports from the Gulf were bypassing the strait, a conduit for one-fifth of global oil and liquefied natural gas supplies during peacetime, compared with 17 percent before the war, according to Kpler data.
The soaring cost of delivery
Such workarounds have nonetheless come at a cost.
Freight costs have reached as much as $40 per barrel in recent weeks, about 10 times the usual rate, according to data from the London Stock Exchange Group, the surge driven by elevated insurance premiums in addition to logistical challenges.
October has been the deadliest month for attacks on commercial vessels since the start of the war, with 32 incidents logged by the United Kingdom Maritime Trade Operations (UKMTO) as of Friday.
“So barrels are moving, but neither smoothly nor reliably. That should not be read as a sign of normalisation,” Isabel Figuerola-Ferretti, an expert in oil markets at Comillas Pontifical University in Madrid, Spain, told Al Jazeera.
“Delivering a barrel has become far more expensive,” Figuerola-Ferretti said.
While market intelligence data has shown exports reaching pre-war levels at various points in recent weeks, the longer-term supply trend is less clear.
Pavel Molchanov, an investment strategist at Raymond James & Associates, expressed scepticism that supply has returned to the pre-conflict trend.
“The IEA’s most recent production data – for September – shows OPEC Gulf production at 15.8 million bpd, which equates to 75 percent of the pre-war baseline,” Molchanov told Al Jazeera, referring to the International Energy Agency’s latest energy outlook.
“That slightly surpassed July’s 74 percent to reach the highest level since the start of the war, but it’s still a considerable distance from 100 percent.”
Meanwhile, oil stockpiles, a buffer during supply disruptions, are waning.
Observed inventories fell by 10 million barrels in September, taking the global stockpile to 509 million barrels below its pre-war level, according to the IEA.
“The market has moved to a chronic squeeze, driven by concrete supply risks: Hormuz transit, shipping and depleted inventories,” Figuerola-Ferretti said.
No reprieve anytime soon
With no permanent end to the Iran war in sight, few analysts see prices returning to normal anytime soon.
Brent futures for delivery in October 2027 stood at more than $90 a barrel on Friday, in a sign that markets see normality as a long way off, still.
“When could prices return to $70? Not soon,” Figuerola-Ferretti said.
“It would need durable de-escalation, a return to normal transit and shipping conditions through Hormuz, rebuilt inventories and freight costs back to normal,” she added.
Molchanov, the investment strategist, said he did not believe supply could realistically exceed 85 percent of pre-war levels without a permanent diplomatic solution to the war.
“Once the political groundwork is in place, the next steps will be logistical: Demining Hormuz, bringing shipping crews back to work, and resuming production at currently shut-in oilfields,” he said.
