Deteriorating Geopolitical Situation Pushes Brent Past $100 Barrier
Brent crude futures prices regained the $100-per-barrel level last week for the first time in approximately two months, driven by worsening geopolitical tensions in the Middle East and renewed confrontations between Russia and Ukraine, particularly attacks targeting energy infrastructure. Threats to the transit of crude oil and petroleum products through the Red Sea, along with other significant risks, further added upward pressure on crude oil prices.
Meanwhile, according to a report by Kuwait Finance House (KFH) Invest, tight supplies in refined products markets have 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 restrictions and a sharp decline in refined product inventory levels ensures that oil markets remain highly vulnerable to sudden geopolitical shocks. Consequently, buyers 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 geopolitical developments included a significant escalation in military activity across the Middle East and Eastern Europe, and a substantial expansion of maritime confrontations in the Middle East. Iran attacked several commercial vessels and oil tankers near the Strait of Hormuz in retaliation for US strikes on its fleet.
Simultaneously, hostilities in the region intensified with widespread drone and missile attacks on Saudi Arabia targeting Aramco’s energy facilities and the vital East-West pipeline. On another front, the war between Russia and Ukraine continued, with recent drone strikes hitting two gas condensate processing plants in Russia, alongside an attack on the port of Novorossiysk, Russia’s largest Black Sea port, and surrounding areas, threatening to further pressure 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 by OPEC and the International Energy Agency (IEA), the US Energy Information Administration (EIA) also marginally lowered its demand growth projections for 2026 in its latest Short-Term Energy Outlook. This comes amid downward pressure on consumption driven by high fuel costs and broader economic uncertainty affecting industrial activity and retail fuel use across major economies.
On the supply side, OPEC crude oil supplies declined in August 2026, erasing more than half of the gains recorded in the previous month. Saudi Arabia’s oil production hit its lowest level since 1990, while Iran saw a sharp drop in output during the month. Conversely, both Iraq and Venezuela announced significant increases in production. Meanwhile, US oil production reached a record high of 13.86 million barrels per day in the last week of August 2026, following five consecutive weeks of growth.
Energy markets have seen a sharp rise since the beginning of the month, following military escalation and attacks targeting oil tankers in the Middle East, which shifted market sentiment away from the diplomatic optimism that had previously prevailed. As risk-off tendencies initially gained traction, prices rose steadily, driven by growing fears of supply disruptions and intensifying maritime tensions. During the past week, the pace of price increases accelerated sharply due to severe bottlenecks in actual supplies, primarily stemming from strict restrictions on maritime navigation through vital waterways in the region, alongside continued attacks on commercial fuel tankers.
This upward momentum pushed Brent crude futures past the psychological barrier of $100 per barrel, reaching over $109 per barrel on Thursday, their highest level since the last week of May 2026. This surge was fueled by a range of factors, including declining inventory levels for both crude oil and refined products. However, prices retreated by 2.8 percent to settle at $104.6 per barrel at the week’s close, as traders assessed the likelihood of a rapid resumption of supplies through a Saudi pipeline that had been damaged, alongside efforts by Middle Eastern foreign ministers to reach a temporary agreement with Iran.
Regarding monthly price trends, the average price of crude oil in August 2026 rose after declining for two consecutive months in June and July 2026. The average price of Brent crude spot contracts increased by 8.7 percent, reaching $90.7 per barrel in August 2026. On the other hand, the average price of the OPEC Reference Basket recorded relatively modest gains of 4.2 percent, reaching $86.4 per barrel in August 2026, compared to $83 per barrel in July 2026.
Kuwaiti Export Crude recorded the smallest monthly increase among the three crude benchmarks, rising marginally by 0.9 percent to average $82.8 per barrel during August 2026. In terms of consensus estimates, forecasts for the next three quarters saw broad-based increases, reflecting the price surge over recent weeks. Consensus estimates for Brent crude prices for the third quarter of 2026 stood at around $85 per barrel, up from $82.25 in the previous month, while estimates for the following two quarters also rose compared to last month’s expectations.
Global oil demand is expected to grow by 0.4 million barrels per day in 2026, averaging 105.84 million barrels per day, reflecting a slight downward revision from OPEC’s previous estimates. According to the OPEC report, demand in OECD member countries is expected to decline by 67,000 barrels per day, while non-member countries are expected to see a drop of 123,000 barrels per day.
For 2027, global oil demand is projected to recover and grow by approximately 2.4 million barrels per day year-on-year, averaging 108.19 million barrels per day, following an upward revision of previous estimates. This growth in 2027 is expected to be supported by a demand increase of 0.4 million barrels per day in OECD member countries and a rise of 1.9 million barrels per day in non-member countries.
The International Energy Agency (IEA) also lowered its demand forecast for 2026 in its latest monthly report, noting that this represents the largest contraction in global demand since the pandemic, driven by the impact of rising diesel prices on consumption rates. According to the reports, the average price of diesel in the United States surpassed $6 per gallon for the first time ever, prompting the US government to impose export restrictions, while the average diesel price in the European Union exceeded €2.11 per liter.
The IEA’s September 2026 report revised its estimates for the global oil demand contraction in 2026 upward by 940,000 barrels per day compared to its August report of the same year, bringing the total projected decline to 2.5 million barrels per day. Additionally, the forecast for demand recovery in 2027 was raised by 200,000 barrels per day, reaching a growth of 2.6 million barrels per day.
Meanwhile, the US Energy Information Administration (EIA), in its Short-Term Energy Outlook report issued in September 2026, projected that global demand for liquid fuels would reach 102.59 million barrels per day in 2026, a downward revision from its previous estimates. This adjustment reflects ongoing geopolitical disruptions and structural macroeconomic pressures affecting global consumption.
For 2027, the EIA expects oil demand to recover to approximately 104.98 million barrels per day. The agency noted that while demand remains relatively weak in the short term, the return of global trade flows to normal levels and the stabilization of the macroeconomic environment next year are expected to strongly support consumption growth.
OPEC, in its latest report, maintained its previous forecasts for oil liquids production by non-OPEC countries, projecting growth of 0.64 million barrels per day, averaging 54.8 million barrels per day in 2026. This growth remains primarily concentrated in the Americas, led by the United States, Brazil, Canada, and Argentina. However, despite stable overall figures, there has been a shift in production distribution among regions: upward revisions to production forecasts for the Americas were offset by downward revisions for the Middle East.
This trend continues into 2027, with non-OPEC oil liquids production expected to grow by 0.62 million barrels per day, averaging 55.5 million barrels per day. The EIA also forecast that US crude oil production would reach a record high of 13.8 million barrels per day in 2026, driven primarily by output from the Permian Basin, estimated at 6.8 million barrels per day, as persistently high global prices continue to stimulate drilling activities.
On the other hand, the IEA highlighted severe constraints facing global crude oil supplies due to ongoing geopolitical stalemate in the Gulf region. The agency sharply lowered its forecasts, now projecting a total decline in global oil supplies of 5.7 million barrels per day in 2026, averaging 100.7 million barrels per day, an additional downward revision of 1.3 million barrels per day compared to the previous month’s estimates.
The full recovery of Middle East oil production has also been officially delayed, with the previously expected start date pushed to late 2026. The U.S. Energy Information Administration’s estimates align with this timeline, noting that although flows through the Strait of Hormuz and alternative export routes may gradually improve, ongoing constraints on infrastructure and maritime navigation are likely to keep regional production below pre-conflict averages until the second quarter of 2027.
This prolonged supply shortfall has led to an unprecedented reliance on global inventories. Observed global stocks have fallen by more than 500 million barrels since the onset of the regional conflict, including a sharp decline of 95 million barrels in August 2026 alone. These drawdowns have placed intense pressure on the global refining system, making it more vulnerable to further market tightness.
