In a crude oil report sent to Rigzone on Monday, Bjarne Schieldrop, Chief Commodities Analyst at Skandinaviska Enskilda Banken AB (SEB), explained why Brent hasn’t rallied to $150 per barrel or higher.
“For the time being there is enough crude oil in the market preventing crude oil stocks from falling sharply and preventing Brent crude from rallying higher,” Schieldrop stated in the report, which included “back of the envelope” calculations of how the loss of crude normally passing through the Strait of Hormuz is currently being compensated “by different elements”.
According to these calculations, the loss of crude supply if the Strait is fully closed is 14 million barrels per day. These calculations see a “crude escape” of five million barrels per day from the Strait, an increase of three million barrels per day in Yanbu crude exports, reduced Chinese crude imports of three million barrels per day, an OECD SPR crude discharge of one million barrels per day, reduced Russian refinery runs of 1.5 million barrels per day, and an increased flow of 0.6 million barrels per day from the Abu Dhabi pipeline. Taking all these “elements” into account, the net balance is a positive 0.1 million barrels per day, the calculations outline.
“This table helps to explain why global crude stocks are not falling rapidly and why Brent crude is not rising exponentially as a result,” Schieldrop said in the report.
“What stands out here is the importance of two elements. One, the escape of oil out of the SoH of maybe as much as five million barrels per day and two, the Saudi Arabian redirection of three million barrels per day to the Red Sea,” he added.
“Shut these two off and the market is quickly in a significant deficit,” he warned.
Schieldrop went on to state that Iran is controlling both of these, noting that this was “a powerful threat to Trump’s midterm elections”.
“The big headache for Trump is that Iran directly and indirectly controls them both,” he said.
“For all we know Iran is allowing five million barrels per day to traverse the SoH every day. It probably isn’t all that difficult for Iran to up the game and totally halt the flow at night out of the SoH,” he added.
“Iran will get better at hitting convoys at night trying to sneak out. But maybe Iran isn’t even trying so hard and is just biding its time for when to choke it fully,” he continued.
“It is very plausible that Iran can fully close of the SoH and also activate a closure of the Bab el-Mandeb Strait if, and when, it wants to,” he warned.
“Further that it will play with such closures over the coming 2-3 months to the U.S. midterm elections on 3 November. Iran won’t let Trump extricate himself from this war and Iran won’t allow this to be easy sailing for Trump,” he went on to state.
Oil Being Pulled in Opposite Directions
In a market analysis sent to Rigzone on Monday, Naeem Aslam, CIO at Zaye Capital Markets, said oil is being pulled in opposite directions.
“Geopolitical supply risk is pushing prices higher, while weaker global demand signals are limiting the upside,” he noted in the analysis.
“Tanker traffic through the Strait of Hormuz has fallen sharply as U.S.-Iran negotiations remain stalled, keeping a meaningful disruption premium in crude,” he added.
“President Trump’s recent comments that Americans may need to tolerate elevated fuel prices while pressure on Iran continues, together with changes to U.S. carrier deployments in the region, reinforce the market’s view that a quick normalization of Gulf energy flows cannot yet be assumed,” he warned.
In the analysis, Aslam noted that, for Zaye Capital Markets, the “key pricing mechanism is straightforward”.
“Every additional sign that Hormuz traffic could remain restricted increases the value of immediately available crude, while credible diplomatic progress or restored shipping would remove part of that geopolitical premium quickly,” he said.
Aslam went on to highlight that the latest demand and inventory signals explain why crude is not moving higher without resistance.
“Friday’s U.S. data showed July retail sales falling an actual 0.6 percent month over month, the first decline in nine months, while the retail control group fell 0.4 percent,” he said.
“Consumer sentiment dropped to an actual 51.0 from 55.2, one-year inflation expectations increased to 4.3 percent, and longer-term expectations remained at 3.3 percent,” he added.
“Those readings point toward weaker household momentum and raise questions about future fuel consumption, but they also weakened expectations for additional monetary tightening, which can support crude through a softer dollar and easier financial conditions,” he continued.
“At the same time, the latest U.S. crude inventory report showed an exceptional 17.4 million barrel build versus expectations for a 1.7 million barrel decline, creating a major bearish counterweight on the physical-demand side,” he went on to state.
Aslam noted in the analysis that Monday carries no major U.S. economic release capable of directly resetting oil expectations, but warned that Chinese industrial production, fixed-asset investment, retail sales, and unemployment data are important because China remains a major marginal source of global petroleum demand.
“Stronger activity would strengthen the consumption case; weaker industrial and investment readings would increase concern that high fuel prices are damaging demand,” he pointed out.
Global Supply-Demand
In his market analysis, Aslam stated that the global supply-demand picture remains unusually conflicted.
“The latest producer-group assessment expects world oil demand to grow by about 0.6 million barrels per day in 2026, with almost all of that expansion coming from non-OECD economies, while demand for participating producers’ crude has been revised down to 42.1 million barrels per day,” he said.
“By contrast, the latest international energy-market assessment expects global oil demand to contract by 1.6 million barrels per day in 2026 and global supply to fall by an even larger 4.3 million barrels per day to 102 million barrels per day,” he added.
“It estimates a third-quarter deficit of 1.8 million barrels per day, while observed inventories plunged by 69 million barrels in July and have fallen by a cumulative 410 million barrels since the end of February,” he continued.
“Refining markets are also tight, with July refinery runs still almost five million barrels per day below year-earlier levels,” he said.
Aslam warned that this “disagreement” is central to oil pricing.
“Demand destruction argues against an unlimited rally, but rapidly disappearing inventory buffers and constrained Middle East supply make the market extremely vulnerable to any additional disruption,” he said.
The analyst went on to outline in the analysis that, for Zaye Capital Markets, “the decision-making question is whether geopolitical supply losses continue to outrun demand destruction”.
“Current [oil] pricing … suggests traders are paying a substantial security premium but are not yet pricing a complete breakdown in Gulf exports,” he said.
“If Hormuz shipping remains restricted, inventories continue falling and Chinese industrial activity holds up, crude could retain upward pressure because refiners would be competing for a smaller pool of accessible barrels,” he added.
“If diplomatic progress restores tanker traffic while Chinese activity disappoints and U.S. inventories remain elevated, the same premium could unwind rapidly and push oil lower,” he continued.
Aslam concluded by noting that the most important indicators for the oil price outlook are Strait of Hormuz vessel flows, U.S. commercial inventories, Chinese industrial demand, refinery margins, the U.S. dollar, and any change in producer-group supply policy.
“The current ecosystem is less a simple demand-driven oil rally than a tight-supply market in which geopolitical risk is temporarily overpowering evidence that high energy prices are already weakening consumption,” he pointed out.
Rigzone has contacted the White House and the Iranian Ministry of Foreign Affairs for comment on Schieldrop and Aslam’s statements. At the time of writing, neither has responded to Rigzone.
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