KIPCO Invest: Supply shortages and worsening geopolitical tensions ignite oil markets
A report by Kuwait Investment Company (KIC) on global oil market performance stated that Brent crude futures prices regained the $100-per-barrel level last week for the first time in about two months, driven by worsening geopolitical tensions in the Middle East and renewed confrontations between Russia and Ukraine, particularly attacks targeting energy facilities. Threats to the transit of crude oil and petroleum products through the Red Sea, along with other significant risks, have further elevated crude oil prices.
The report noted that tight supplies in refined product markets simultaneously intensified overall market pressures, pushing refining margins and price differentials for diesel, gasoline, and jet fuel to exceptionally high levels in the Atlantic Basin and Europe. The combination of shipping route constraints and sharp declines in refined product inventory levels ensures that oil markets remain highly vulnerable to sudden geopolitical shocks. Consequently, customers in China and Singapore are currently sourcing crude oil from distant regions in Latin America and West Africa, while South Korea is routing its refined products to Europe via a longer route spanning approximately 19,000 kilometers.
Key developments on the geopolitical front included a significant escalation of military activity across the Middle East and Eastern Europe. Confrontations at sea in the Middle East expanded considerably, with Iran attacking several commercial vessels and oil tankers near the Strait of Hormuz in retaliation for U.S. strikes on its fleet. Simultaneously, hostilities in the region intensified following large-scale drone and missile attacks on Saudi Arabia targeting Aramco’s energy facilities and the vital East-West Pipeline.
Meanwhile, the war between Russia and Ukraine continued, with recent drone attacks hitting two gas condensate processing plants in Russia, alongside an attack on Novorossiysk, Russia’s largest Black Sea port and its surrounding areas, threatening to impose further pressure on commodity flows from the region.
On the demand side, rising crude oil prices and persistent supply chain bottlenecks have created strong headwinds, leading to a decline in demand, according to the latest forecasts from OPEC and the International Energy Agency (IEA). The U.S. Energy Information Administration (EIA) also slightly lowered its 2026 demand growth forecast in its latest Short-Term Energy Outlook.
