- Middle Eastern oil exports dropped sharply in October.
- The US‑Russia diesel agreement will not curb oil demand, which continues to climb in China.
The US dollar reached a fresh high on Monday, with the dip in oil prices after the US‑Russia diesel deal counterbalanced by rising Middle‑East tensions. Investors, meanwhile, are waiting for upcoming inflation data and a remarks from Kevin Warsh, leading some to unwind positions. Consequently, the dollar index slipped back from its peak.
Kpler data show that oil shipments through the Strait of Hormuz plunged in October. During the week ending October 10, average flows were 10.5 million barrels per day, down 38 % from the pre‑conflict level of 17.1 million bpd. Reuters cites a higher September average of 18.11 million bpd, versus 18.22 million bpd over the eight weeks preceding the Middle‑East escalation. Exporters warn that renewed attacks on tankers and Saudi facilities are heightening concerns.
Although the US‑Russia accord appears substantial on paper, it amounts to just nine days of U.S. demand, with shipments dispersed over time. A lasting decline in oil prices will depend on a coordinated solution to supply shortfalls and the geopolitical risks confronting oil‑producing nations.
Elevated geopolitical risk premiums and record freight rates are underpinning the Brent rally, alongside signs that China is boosting its oil purchases. Earlier in the conflict, a sharp fall in Chinese imports kept Brent from breaking fresh records and helped stave off a broader economic downturn. Bloomberg notes that 96 very large crude carriers, each able to lift two million barrels or more, are slated to dock at Chinese ports within the next 90 days — the highest tally since late February.
Several observations merit attention. First, as WTI approaches $100 a barrel, the United States intensifies its efforts to mediate or enforce peace; for Brent, which trades slightly higher, the intervention threshold lies near $105. Second, oil markets are highly price‑inelastic — a mere 1 % imbalance can swing prices by 10‑20 %. Consequently, price drops should not be unexpected even when underlying fundamentals shift only modestly, given the prevailing market reflex.
The third driver is China’s rising appetite for oil. Earlier, Beijing curtailed purchases at elevated prices and tapped strategic reserves, expecting the Iran‑related conflict to be brief — a dynamic that kept prices subdued in spring. By autumn, however, Chinese buyers shifted to forward contracts for October delivery, and demand has kept climbing. Compounding the supply shortfall are record tanker freight rates, now amounting to roughly one‑third of the crude’s delivered cost, and heightened supply volatility that lifts the risk premium. Together, these factors threaten to fuel inflation, push bond yields higher, and bolster the dollar further.
The FxPro Analyst Team
