The U.S.-Iran conflict has changed the definition of an available barrel, Ole Hvalbye, Partner at ABG Sundal Collier, told Rigzone.
“Production capacity is of course of limited value if the crude cannot be processed, transported, [and] loaded/delivered to the consumer,” Hvalbye said.
“I believe that the market will increasingly distinguish between spare capacity on paper and ‘actual deliverable spare capacity’,” he added.
Hvalbye outlined to Rigzone that the conflict may not have caused lasting changes in terms of physical scarcity or permanently higher oil/product prices but warned that he believes it has changed how the market values security of supply and likely also spare capacity.
“The oil market is not permanently short, but it is permanently less trusting,” Hvalbye told Rigzone.
“The result is unlikely to be one forever high oil price. Yet, it is a higher value placed on secure logistics, inventories, refining flexibility and diversified supply,” he added.
Hvalbye also warned that “we could see a wider differentials and more violent, product-led price spikes”.
“For us that have seen a crisis, or two or three, markets always find a way, even in the heat of war; however, today every alternative route is either longer or more expensive,” he highlighted.
“That is exactly the risk premium most likely to survive a future ceasefire. Hence, slightly higher for longer makes fundamentally sense,” he added.
“Inventories will be filled above the levels they were entering the war and alternative supply sources should in theory be valued higher,” he continued.
Markets Always Find a Way
Hvalbye pointed out to Rigzone that, before the conflict, the Strait of Hormuz carried around 20 million barrels per day of crude/product.
“Depending on the method and treatment of tankers operating without AIS signals, Aug/early-Sept overall Gulf exports were ~14 million barrels per day,” he pointed out.
“Yet, of course way lower during the last few days with further escalation,” he added.
Hvalbye told Rigzone that he thinks the market has “adapted surprisingly quickly”.
“It has been estimated that ~500 million barrels crossed the region with tanker transponders shut off between June and August, supported by military escorts/ship to ship transfers/inventory releases, and alternative pipeline routes,” he said.
“This is a good illustration of how ‘markets always find a way’, even in the heat of war,” he added.
Hvalbye warned, however, that “the solution is less transparent, more expensive and more difficult to insure, while provide a lot of uncertainty to the markets, which is also why we see the current high volatility within crude and products”.
Bottleneck More in Products Than Crude
Hvalbye went on to outline to Rigzone that another lasting change the industry may see as a result of the conflict is a “bottleneck” that is more prevalent in products rather than crude.
“IEA [International Energy Agency] estimates that global refinery runs were 4.2 million barrels per day below last year in August, while combined Gulf and Russian diesel/gasoil exports were 1.6 million barrels per day below February this year,” Hvalbye highlighted.
“Those two regions previously supplied almost 45 percent of global seaborne diesel trade. This explains why diesel has traded high above crude and why the inflationary impact is larger than the Brent price alone,” he added.
“Also, global observed oil inventories have fallen by 507 million barrels since February, including 95 million barrels in August alone,” he continued, noting that the cumulative draw is equivalent to around five days of total global oil demand.
“Thus, each additional outage matters more than it did at the beginning of the conflict as we eat … [from] the buffer,” he pointed out.
Hvalbye highlighter, however, that “this does not mean that oil must trade above $100 per barrel”.
“Higher prices create their own cure through demand destruction, additional non-OPEC supply, refinery responses, and new infrastructure,” he said.
Hvalbye also warned, however, of a “large uncertainty around demand”, which he said “illustrates the unusually poor visibility”.
“The IEA expects global demand to fall by 2.5 million barrels per day in 2026, whereas OPEC still expects growth of 0.38 million barrels per day, a difference of ~3 million barrels per day,” he highlighted.
“Very large indeed and difficult to interpret. Both expect a strong rebound of ~2.4-2.6 million barrels per day in 2027,” he added.
“The agencies disagree materially about the depth of the current demand destruction is what I get out of it. but both view the shock as cyclical rather than permanent,” he continued.
Highly Sensitive
In a market analysis sent to Rigzone on Tuesday, Naeem Aslam, CIO at Zaye Capital Markets, warned that the wider oil ecosystem remains highly sensitive to refinery capacity, shipping routes, and demand destruction.
“Russian and Middle Eastern refinery disruption has pushed diesel prices to record levels and left product inventories unusually tight, meaning crude prices can soften while downstream fuel costs remain elevated,” Aslam said in the analysis.
“OPEC+ is also influencing the balance by keeping October production requirements unchanged from September and maintaining its market stability stance, while its latest outlook reduced 2026 oil demand growth to 380,000 barrels per day,” he added.
“The IEA is more cautious, projecting a 2.5 million barrel per day decline in global oil demand in 2026,” Aslam pointed out.
Aslam went on to state that the gap between supply discipline and weakening consumption expectations is central to the current price structure “and explains why Brent can hold above $100 without generating a straight line rally”.
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