National Bank: Kuwait restores maximum production to 1.9 million barrels per day
A report issued by Kuwait Finance House stated that oil prices returned to above $100 per barrel in September, amid rising geopolitical risks linked to militants’ attacks on Saudi Arabia’s oil infrastructure and the continued failure to reach a resolution to the US-Iran conflict.
The Houthi entry into the conflict has opened a second front, limiting export flows through the Red Sea and threatening to push the global oil market into a deeper deficit, even as global oil inventories are declining at a record pace, despite alternative measures adopted by regional producers and rising exports from outside the region.
In the absence of an agreement that would fully reopen the Strait of Hormuz in the near term, global oil supplies will remain constrained, keeping oil prices at elevated levels.
The report added that the global oil market has remained under immense pressure in recent weeks, due to the ongoing repercussions of the US-Iran conflict and severe disruptions in shipping traffic through the Strait of Hormuz. Oil prices began rising again after the collapse of a memorandum of understanding between the two sides in July, and jumped back above $100 per barrel in early September as the Houthis and Iran-aligned militias entered the conflict, leading to the closure of Bab al-Mandab to Saudi oil exports and significantly increasing the threat level to the Kingdom’s energy infrastructure.
The main East-West pipeline, with a capacity of 7 million barrels per day, was forced to halt operations for several days after its pumping station was attacked, but it has since been partially restarted as the Kingdom has doubled its repair efforts and adopted alternative solutions. Saudi efforts to reassure the market and talk about resuming US-Iran diplomatic negotiations briefly pushed Brent crude below $100 per barrel. Meanwhile, oil tanker flows through the strait continue under intense US Navy protection, despite Iran’s opposition.
Nevertheless, both futures and physical oil markets, in particular, still indicate an extremely tight supply situation. Brent futures spreads between one- and two-month contracts remain in the range of $4–5 per barrel, significantly higher than the sub-$1 per barrel average seen in February, and they continue to exhibit a clear backwardation structure. Meanwhile, the actual Brent price, as reflected in the Platts-dated Brent indicator, reached $132 per barrel on September 15, representing a premium of $23 per barrel over paper Brent.
The same applies to local crudes, as the rise in the price of Kuwait’s export crude to its highest level in four months in mid-month reflects a deep structural deficit in the medium sour crude market, a category most affected by the closure of the Strait of Hormuz and most in demand from Asian refineries. Pressure is most acute in the market for refined oil products, which have seen sharp spikes in the prices of diesel/gasoil (the world’s industrial fuel), gasoline, and jet fuel.
Diesel prices in the United States have surpassed $6.50 per gallon, a record high, while the average price of gasoline has moved above $4.40 per gallon. Meanwhile, European diesel futures recently closed at their all-time high, doubling their levels at the beginning of the year. This surge is the result of a “perfect storm” of oil product shortages stemming from the Russia-Ukraine and US-Iran conflicts, in addition to Chinese export curbs. Refining margins and the price spreads between crude oil and refined products have also risen sharply, with diesel prices exceeding $100 per barrel.
Oil Demand
The report added that ongoing disruptions have affected oil supplies and the availability of fuel products, with significantly higher oil prices expected to impact global oil consumption in 2026. Consequently, the International Energy Agency (IEA) has gradually downgraded its oil demand forecast during the conflict period. In September, it cut its demand forecast by a substantial 940,000 barrels per day, now projecting a demand contraction averaging 2.5 million barrels per day (to 102.5 million barrels per day) in 2026.
The largest losses occurred between April and June (-5.3 million barrels per day year-on-year), particularly in Asian demand for middle distillates (such as diesel) and petrochemicals. China played a key role in bringing global demand closer to supply levels during the crisis by reducing its oil imports and scaling back the operation of local refineries.
The IEA indicates that the pace of demand contraction is slowing, with declines estimated at around 3.4 million barrels per day in the third quarter and 2.0 million barrels per day in the fourth quarter. This still means that oil consumption will experience its first annual decline in six years. However, unlike in 2020 when COVID-19-related lockdowns caused a sharp drop in demand, this shock is supply-driven.
For 2027, the IEA expects demand to rebound strongly by 2.6 million barrels per day, reaching 105.1 million barrels per day, offsetting this year’s losses, driven by the return of supplies to normal levels and easing price pressures. A return to pre-conflict levels (105 million barrels per day) is unlikely before late 2027. The IEA has described 2026–2027 as “fundamentally a lost period” for global oil consumption.
Gulf Flows Recover
Estimates of the volume of oil passing through the Strait of Hormuz throughout the conflict period have varied widely. US estimates, which provided security cover for ships, were often more optimistic compared to vessel-tracking firms and even the IEA.
The US Central Command recently reported that one billion barrels of oil, equivalent to more than 16 million barrels per day, were shipped during August–September, a massive volume that would raise oil flows to 80% of pre-conflict levels. In contrast, the IEA offers a more conservative estimate, placing flows at 7.6 million barrels per day in August, and expects total global supplies to decline by 5.7 million barrels per day this year to an average of 100.7 million barrels per day.
Notably, the agency estimates that oil exports from outside the Middle East have risen by an average of 2.3 million barrels per day since February, led by the United States (+520,000 barrels per day), Brazil (+470,000 barrels per day), Kazakhstan (+400,000 barrels per day), and Venezuela (+300,000 barrels per day). By 2027, supplies are expected to rebound by 8 million barrels per day, driven by Gulf exporters.
Despite ongoing threats to regional oil infrastructure, the alternative measures adopted by Gulf producers have proven resilient, and flows have increased since the collapse of the US-Iran memorandum of understanding in July. This trend is supported by OPEC production data, which showed a rise in regional oil output in August for the fourth consecutive month. Total production by countries participating in the Cooperation Declaration reached 34.3 million barrels per day. Among OPEC members, Iraq and Kuwait restored the largest volumes of production compared to the declines recorded in April, reaching 3.4 million barrels per day and 1.9 million barrels per day, respectively, in August.
