Brent crude remains far below $150 a barrel because supply escaping the Strait of Hormuz and a Saudi rerouting to the Red Sea are offsetting most of the disruption, SEB's Bjarne Schieldrop says. Zaye Capital Markets' Naeem Aslam adds that weak US demand data, including a 17.4 million barrel crude inventory build, are capping the rally even as Middle East risk keeps a premium in the price.
Oil has stayed well short of $150 a barrel despite the threat of a full Strait of Hormuz closure, and analysts point to a delicate supply balance rather than a lack of geopolitical risk. Bjarne Schieldrop, chief commodities analyst at SEB, laid out the math in a report sent to Rigzone on Monday: a full closure of the Strait would remove 14 million barrels per day, but that loss is currently being replaced almost barrel for barrel.
The math behind the missing rally
Schieldrop's calculations show a five million barrel-per-day "crude escape" from the Strait, a three million barrel-per-day increase in Yanbu exports, three million barrels per day of reduced Chinese crude imports, a one million barrel-per-day OECD strategic reserve discharge, 1.5 million barrels per day of reduced Russian refinery runs and an extra 0.6 million barrels per day from the Abu Dhabi pipeline. Combined, these elements leave the market with a net surplus of just 0.1 million barrels per day. According to Schieldrop's report: "global crude stocks are not falling rapidly and why Brent crude is not rising exponentially."
Iran holds the two levers that matter
Schieldrop singled out the Strait escape flow and Saudi Arabia's Red Sea redirection as the pieces that matter most, warning that shutting off those two flows would push the market into a significant deficit. He said Iran controls both routes directly and indirectly, calling this a threat to Trump's midterm elections, and added that Iran could plausibly close both the Strait of Hormuz and the Bab el-Mandeb Strait fully if it chose to.
Weak US data add a second brake
Naeem Aslam, CIO at Zaye Capital Markets, said oil is being pulled in opposite directions: geopolitical supply risk pushes prices higher while weaker demand signals limit the upside. He pointed to July retail sales falling 0.6% month over month, the first monthly decline in nine months. Consumer sentiment also dropped, with sentiment falling to 51.0 from 55.2. At the same time, US crude inventories built by 17.4 million barrels against forecasts for a 1.7 million barrel decline, a bearish counterweight on the physical-demand side.
A market split on the outlook
Supply-demand assessments are pulling in different directions too. One producer-group estimate expects world demand to grow by about 0.6 million barrels per day in 2026. A separate international energy-market assessment instead expects demand to contract by 1.6 million barrels per day and supply to fall by 4.3 million barrels per day to 102 million barrels per day. Aslam said this disagreement is central to pricing: demand destruction argues against an unlimited rally, but rapidly disappearing inventory buffers and constrained Middle East supply leave the market vulnerable to any additional disruption.
Aslam framed the setup as a tight-supply market rather than a demand-driven crude oil rally, in which geopolitical risk is for now outweighing signs of weakening demand.
Source: Rigzone
Trading involves risk.
Risk Disclaimer
