Oil Price Outlook: Brent $106.60, Yanbu Attacks and the Hormuz Risk Premium
Brent settled at $106.60 on Thursday, 47% above its pre-war close of $72.48, after Saudi Arabia intercepted six Houthi missiles aimed at the Red Sea port that is its only large route around Hormuz. US-Iran talks on a phased reopening have not produced a deal. The desk expects Brent to hold between $98 and $118 through the November 3 midterms.
Six ballistic missiles went up from Yemen on Thursday, aimed at Taif and at Yanbu, according to the Saudi-led coalition, which said all were intercepted. The Houthis claimed hits on Aramco facilities at Yanbu and on Riyadh; Saudi authorities did not confirm either. By the close, Brent had gained $3.52 to settle at $106.60 a barrel and WTI $2.45 to $94.61, even as Tehran said it was open to diplomacy to end the war. Traders sold the talk and bought the missiles.
They were right to. Brent closed at $72.48 on February 27, the last trading day before US and Israeli strikes on Iran. Thursday's settlement leaves about $34 a barrel of war in the price. Most of that premium now depends on one Red Sea port and a 1,200-kilometre pipe feeding it. The desk thinks it stays there until tankers move through Hormuz under a signed arrangement, and that no such arrangement arrives before November 3.
The Strait of Hormuz carried about 20 million barrels a day in 2024, close to a fifth of world oil consumption, according to the EIA. The International Energy Agency puts all the pipelines that bypass it at 3.5 to 5.5 million barrels a day. Even at the top of that range, the bypasses replace just over a quarter of normal flow (5.5 divided by 20). Saudi Arabia's East-West line to Yanbu is the biggest of them. Reuters reported that it carried about 4 million barrels a day during the disruption until a September 11 drone strike shut it. It restarted on September 22 at low rates, sources told Reuters, with full flow six to eight weeks away, and on Thursday morning tanker loadings at Yanbu had still not resumed. Hours later, missiles were fired at the port.
Hitting Yanbu matters more than hitting a Gulf terminal, because a Gulf terminal is already behind a closed strait. Yanbu is the exit. Cargoes loaded there also have to pass Bab el-Mandeb, where the Houthis declared a naval blockade in July. Every loading that slips pushes the date when bypass barrels can offset a Hormuz outage further out.
The price spread shows it. Brent traded almost $12 over WTI at the settle, and Abu Dhabi's Murban, a Gulf grade that normally tracks Brent closely, settled at $117.60, Gulf News reported. The scarcity sits in waterborne barrels east of Suez. Freight tells the rest. Before February, war-risk cover for a Hormuz transit cost 0.15% to 0.25% of hull value. By March, Lloyd's List reported that insurers were seeking $10 million to $14 million for a single passage by a five-year-old VLCC worth $138 million. Spread over a cargo of about 2 million barrels, that is $5 to $7 a barrel before the ship has earned a dollar of freight.
How much of this can governments paper over? Less than in 2022. After Russia invaded Ukraine, the IEA coordinated two releases totalling about 183 million barrels and Washington ran a separate 180 million-barrel sale. This year's response was bigger: in March the IEA agreed a record 400 million-barrel collective action, with 172 million barrels as the American share, and members have released more than 300 million so far. The US Strategic Petroleum Reserve held 284.6 million barrels in the week to September 18, its lowest level since 1982. Emmanuel Macron said on September 18 that he would convene the G7 "to move forward on improving coordination on the level of stockpiles." Europe's stocks are mostly gasoline and diesel, useful when the continent's diesel benchmark is above $200 a barrel and no help to an Asian refinery short of Arab Light.
Set the stocks against the hole. The EIA's September outlook assumes 5.7 million barrels a day of Middle East crude stays shut in through the fourth quarter. Over 92 days that is about 524 million barrels. The whole 400 million-barrel release, had it been kept in reserve, would cover roughly 70 days of that shortfall. Another G7 release can shave a few dollars and signal intent; it cannot stand in for the strait.
The shock is already reaching the rest of the economy. US gasoline prices were up 27.4% on a year earlier in August's CPI, energy up 16.3%, headline inflation 3.4%. AAA's national average hit $4.27 a gallon on September 10. The bond market now prices a 66% chance that the Fed raises rates in October, with officials pointing to energy and tariffs. That is the stagflation mix, and it explains why the Senate vote mattered to traders. On Thursday senators voted 49-50 against a resolution directing the president to withdraw US forces from hostilities with Iran, the 14th such attempt. US military involvement continues, and so does the blockade.
The main argument against the desk's call is that a deal is closer than the price implies. US and Iranian negotiators in New York are exploring a phased path, Reuters reported: Tehran reopens Hormuz, Washington lifts its blockade, with Iran's written road map proposing a regional ceasefire of up to 60 days. An Iranian official told Reuters that Tehran is willing to defer its demand for transit fees. If that happens, the EIA's fourth-quarter Brent forecast of $90.66 is the obvious target, and the $16 between it and Thursday's close would disappear quickly.
The obstacle is sequencing. Washington wants pressure to extract concessions first; Tehran wants pressure lifted first. Dennis Ross, a former US negotiator, put the chance of an agreement before the midterms at about 30%. A ceasefire signed in June collapsed on July 8, which is why underwriters will want weeks of safe passages before cutting rates, even after a signature. Insurance and freight will lag any diplomatic headline, so delivered crude in Asia stays expensive for longer than the Brent screen suggests.
Winners and losers follow the geography. US producers and exporters selling at Brent-linked prices, and Gulf Coast refiners such as Valero and Marathon Petroleum buying WTI-linked crude, gain from a $12 spread. Tanker owners collect war-risk-inflated freight. Asian refiners in India, Japan and South Korea, built around Gulf grades, pay the Murban premium and the insurance. Saudi Aramco earns more per barrel and ships fewer of them, and every missile at Yanbu cuts the second number. European diesel buyers, from truckers to airlines, carry the heaviest product bill. Iran's economy absorbs the blockade.
The desk expects Brent to trade between $98 and $118 through November 3 and to settle above $100 on October 30. A signed first phase, meaning the blockade lifted and escorted tankers moving through Hormuz, would break the bottom of that range within a week and send Brent toward the low $90s. A successful strike that stops Yanbu loadings for more than a fortnight would break the top.
Four checkpoints matter. The first is the first confirmed tanker loading at Yanbu since September 11, and whether Aramco sustains it for a week. The second is the date and outcome of Macron's G7 meeting: a release sized above 100 million barrels would pull the range down by a few dollars. The third is the EIA's October outlook and whether it keeps 5.7 million barrels a day shut in for the fourth quarter. The fourth is the New York talks, where the test is any statement that names a date for lifting the blockade.