Crude Oil Prices Split Sharply as Middle East Chokepoints Reshape Global Trade
A widening price chasm has emerged in crude oil markets as Middle East conflict disrupts key shipping routes, pushing Brent to a three-month high.
A stark divide has opened up in global crude oil pricing, with barrels that are constrained by key shipping chokepoints trading at steep discounts while freely moving grades attract hefty premiums.
The gap has widened as the Middle East conflict intensifies. Yemen's Iran-aligned Houthis have made rapid advances that threaten full control of the Bab el-Mandeb strait, and Saudi Arabia has shut down its pipeline to the Red Sea following an attack reportedly launched from Iraq.
Brent futures have climbed in response, hitting a three-month high of $109.97 a barrel on September 11 — up 57% from $70.14 on July 2, the lowest level since the conflict began on February 28 when the U.S. and Israel attacked Iran.
Crucially, crude grades delivered against Brent futures are loaded in Europe or the United States and are not exposed to Middle East chokepoints. By contrast, oil loaded in the Persian Gulf that must transit the Strait of Hormuz to reach buyers is being offered at substantial discounts.
Iraq's Basrah Medium crude for October loading is being offered at a discount of $43.06 a barrel to Murban, a regional benchmark produced by Abu Dhabi National Oil Company, according to data compiled by commodity price reporting agency Argus. The Basrah Medium price is for a free-on-board cargo loading in Iraq, while Murban is priced at Fujairah, a UAE port at the end of a pipeline that bypasses the Strait of Hormuz.
Qatar's Al-Shaheen, another grade that can only reach market through the strait, is being offered at a discount of $24.92 a barrel to Murban.
Some crude continues to flow through the Strait of Hormuz, though exact volumes are difficult to track. Estimates put the figure at around 10 million barrels per day, or about half pre-conflict levels.
Once crude exits the strait, it commands a premium. Argus assessed the ship-to-ship transfer price of ADNOC's Upper Zakum at a premium of $7.00 a barrel to regional benchmark Dubai crude for October loadings and $13.25 for November cargoes.
The assessments indicate that even when crude can move through the Strait of Hormuz, the cost of doing so now represents a significant portion of the total delivered cost for an Asian refiner.
Crudes outside the Middle East are meanwhile attracting growing premiums that widen the closer the oil is to major consumers in Asia. The most expensive grade in the daily Argus assessment is Pyrenees, a medium-sweet crude produced off Australia's northwest coast. It was assessed at $138.04 a barrel on September 11, a premium of $33.43 to Brent's close of $104.61.
Pyrenees stood at $70.59 a barrel on February 27, a discount of $1.89 to Brent's close of $72.48 the day before the Iran conflict began. That means Pyrenees has risen 96% since the war started, outperforming Brent's 44% gain.
Angola's Cabinda oil shows a similar pattern, ending at $118.46 a barrel on September 11, up 62% from $73.08 on February 27. Its weaker performance relative to Pyrenees reflects rising freight costs, which have surged as tankers account for higher bunker fuel expenses and longer journeys caused by the Middle East disruption.