Why oil prices are rising even as Middle East exports recover

Oil prices have gone up in recent days, even though more oil is leaving the Middle East. That sounds odd, because more supply usually pushes prices down. This piece explains why the two are moving apart, and what it could mean for fuel costs and for Nigeria's oil income.

What is actually happening to oil flows?

An OilPrice analysis, using figures from Kpler, says oil exports out of the Middle East in October are higher in total than before the US and Israel launched their first strikes on Iran at the end of February. Kpler is a firm that tracks oil cargoes and ships.

The Strait of Hormuz is the narrow sea passage at the mouth of the Persian Gulf. A large share of the region's oil leaves through it. Kpler estimates that flows through the strait have averaged 11.7 million barrels a day this month. That is up from 9.8 million barrels a day in September, and close to the 14.5 million barrels a day average in February, before the war.

Here is the working, which is derived by RainingMoney from those figures. The rise from September to October is 1.9 million barrels a day (11.7 minus 9.8). The gap that remains against February is 2.8 million barrels a day (14.5 minus 11.7). So Hormuz flows have recovered a lot, but they are not yet back to where they were.

So why have prices gone up?

The article's answer is that barrel counts alone do not make the world feel safe. Alongside the recovery, Iran has stepped up strikes on tankers. Using UK Maritime Trade Operations data and statements from Iran's Islamic Revolutionary Guard Corps, the article says at least 25 ships were hit in Hormuz in the first 20 days of October. Most were tankers.

Outlets that track these incidents say many ships do not report an attack, so the real number could be 40 to 50 vessels. That higher range is an estimate from those outlets, which the article does not name. Treat it as unconfirmed.

Reuters, using Kpler data, counted at least 18 tanker attacks in just the last two weeks. Kpler analysts also said crude crossing the strait fell 27% from a wartime high the week before, to at least 10.1 million barrels a day. On 6 October they counted only seven commodity carriers crossing, the lowest since late July.

RainingMoney's reading: oil prices reflect what traders expect to happen next, not only what is moving today. When ships are being hit, traders may pay more to be sure of getting oil later. The article does not put it in those words, but its list of risks points that way. It also says the chance of a peace deal between the US and Iran is as remote as it was three months ago.

Why do the numbers seem to contradict each other?

They do, and it is worth being honest about that. Kpler's figure for Hormuz this month is 11.7 million barrels a day. Kpler also reported that the daily average flow out of the Persian Gulf had shrunk to 8.5 million barrels, from more than 20 million barrels a day two weeks earlier.

The article does not explain the gap. The figures may cover different areas, different types of oil or different time periods. We cannot tell from the source. The author's own comment is that conflicting data from the same sources does not help anyone feel secure about supply. For you, the lesson is simple: the flow numbers are moving fast, and one headline figure can mislead.

What are ship-to-ship transfers, and why do they raise costs?

A ship-to-ship transfer means pumping oil from one vessel to another at sea instead of loading it at a port. The article says much of the oil leaving the Persian Gulf is now moving this way, with transfers off the coast of Oman.

This takes extra effort and uses up more ships. The article says it has pushed freight rates to record highs and kept them there. Freight is the fee paid to hire a ship to carry cargo. When freight is dear, the cost of delivering a barrel goes up, and that cost can end up in the price of the fuel made from it.

The article adds that President Trump was said to be considering lifting sanctions on some tankers used to carry Russian oil, to ease the shortage of ships. Sanctions are legal limits on who may trade with whom. The article says this will not help much, because the so-called shadow fleet, a group of tankers that carry sanctioned oil, is itself limited and busy. Rahul Kapoor of S&P Global Energy told Bloomberg: "Sanctions relief does not equal immediately usable mainstream tanker capacity." He said the number of vessels that could realistically move back into mainstream trading would likely be materially smaller than the whole sanctioned fleet.

Are prices rising everywhere?

Not quite. The article says prices are rising on the futures market. A futures price is what traders agree today for oil to be delivered at a later date. In the physical market, where real cargoes are bought and sold, Bloomberg reported this week that prices are actually down. The article also mentions a slight dip in tanker rates, which it calls a welcome development. It gives no figures for either move.

So the picture is mixed. Expectations about the future are pushing up the futures price, while the market for immediate cargoes looks calmer.

What do analysts expect next?

Ryan Fitzmaurice, a senior commodity analyst at Marex, told Bloomberg: "There's still plenty of headline risk at play. Oil stocks are quite low and it's difficult to see them rebuilding given current dynamics." Oil stocks are the reserves held in storage. When they are low, there is less cushion if supply is disrupted again.

Fitzmaurice also said there was hope for lower heating demand this winter if El Niño lives up to expectations. Less heating means less fuel burned, which would ease prices. The article's author says betting on the weather is not the soundest strategy, and expects prices to stay elevated until at least the end of the year. That is the author's view, not a forecast from a data source.

What does this mean for petrol and diesel prices?

The source says nothing about Nigerian pump prices, and our correspondent has not supplied any price checks, so no Nigerian numbers are given here. What can be said is how the link works in general.

1. The cost of crude oil sets the starting point for the cost of petrol and diesel.
2. Shipping and insurance add to the cost of getting oil and fuel to where they are needed.
3. The exchange rate matters, because oil is traded in dollars and Nigerians pay in naira.
4. Taxes, local transport and the margins of sellers are added on top.

A higher crude price or higher freight cost can push up the first two layers. Whether and how fast that reaches your pump depends on the other layers and on local conditions. The article gives no basis for saying what will happen to prices in Nigeria.

What does it mean for Nigeria's oil earnings?

Again, the source is about the Middle East, not Nigeria. As a general matter, Nigeria sells crude oil in dollars. A higher price per barrel means more dollars from each barrel sold. That can help government revenue and the supply of dollars in the economy, which in turn matters for the naira.

How much Nigeria gains depends on how many barrels it actually produces and sells, and on how the money moves through government accounts. Higher prices also raise the cost of fuel that the country or its businesses buy. The same price move can therefore help in one place and hurt in another. We do not have Nigerian production, revenue or fuel-import figures in this source, so we cannot say which effect is bigger.

What is still not known?

• How many ships have really been attacked. The article says at least 25 in the first 20 days of October, with a possible 40 to 50.
• Why Kpler's Hormuz figure (11.7 million barrels a day) and its Persian Gulf figure (8.5 million) differ so much.
• How high prices and freight rates actually are. The article gives no price levels.
• Whether a peace deal is coming. The article says the chance looks as remote as three months ago.
• How and when any of this reaches Nigerian pump prices or government income. The source is silent on both.

There is always a workaround, even for a problem as severe as the closure of Hormuz, but that workarounds cost money and are no replacement for business as usual. For readers, that is the thread to follow: oil is still moving, but it is moving at a higher cost and with more risk.