Kuwait Investment Company (KIC): Oil Markets Under Geopolitical Pressure

A report issued by KAMCO Invest on the performance of global oil markets in September 2026 showed that crude markets experienced a sharp rise in recent weeks, with the Brent crude basket surpassing the $100-per-barrel level for the first time in about two months. This surge was driven by escalating geopolitical tensions in the Middle East and Eastern Europe, which raised concerns about supply disruptions and shipping route security. The report noted that attacks targeting oil tankers and oil facilities, alongside threats to the movement of crude and petroleum products through the Red Sea and the Strait of Hormuz, added significant risk premiums to prices. Furthermore, tight refined product supplies and declining inventories pushed refining margins and price spreads for diesel, gasoline, and jet fuel to exceptional levels in Europe and the Atlantic basin.

**Brent Surpasses $109**

Oil prices started September on a strong note, amid growing fears of supply disruptions. Brent futures surpassed the $100-per-barrel mark before climbing above $109, the highest level since late May 2026. However, prices retreated by 2.8% at the end of the week to settle at $104.6 per barrel, as markets assessed the likelihood of resuming supplies through a damaged Saudi pipeline, coinciding with regional diplomatic efforts to reach a temporary agreement with Iran. On a monthly basis, the average spot Brent price in August rose by 8.7% to $90.7 per barrel, while the average OPEC basket increased by 4.2% to $86.4. Kuwaiti Export Crude recorded a marginal increase of 0.9%, averaging $82.8 per barrel. Markets also raised their expectations for Brent prices in the coming quarters, with consensus estimates for the third quarter of 2026 reaching approximately $85 per barrel, up from previous estimates of $82.25.

**Supply Movements**

The report confirmed that geopolitical developments have become the most influential factor in oil markets, citing the widening scope of naval confrontations in the Middle East, attacks on commercial vessels and oil tankers near the Strait of Hormuz, and strikes on energy facilities and pipelines in Saudi Arabia. In Eastern Europe, Russian and Ukrainian attacks on energy infrastructure continued, including facilities for processing gas condensates and the Russian port of Novorossiysk on the Black Sea, heightening risks to energy and commodity flow disruptions.

**Global Demand**

The report forecast a slowdown in global oil demand growth in 2026 due to higher prices, supply chain bottlenecks, and economic pressures. According to OPEC estimates, global demand is expected to grow by approximately 400,000 barrels per day (bpd) during the year, reaching 105.84 million bpd. Conversely, OPEC anticipates a strong demand recovery in 2027, rising by 2.4 million bpd to 108.19 million bpd. The International Energy Agency (IEA), however, lowered its global demand forecasts further, predicting a decline of approximately 2.5 million bpd in 2026—the largest drop since the COVID-19 pandemic—due to the impact of high fuel prices, particularly diesel. The average diesel price in the United States exceeded $6 per gallon for the first time, while the average in the European Union surpassed €2.11 per liter.

**OPEC Supply Decline**

On the supply front, OPEC production fell in August 2026 to 19.91 million bpd, down from 20.81 million bpd in July, a decrease of 900,000 bpd. Saudi Arabia recorded the largest decline in OPEC production, dropping by approximately 1.12 million bpd, while Iranian production fell by 140,000 bpd. In contrast, Iraqi production rose by approximately 270,000 bpd, while Kuwaiti and Venezuelan production each increased by 70,000 bpd. In the United States, production continued to hit record levels, reaching 13.86 million bpd during the last week of August, supported by higher prices and sustained drilling activity, particularly in the Permian Basin.

**Declining Global Inventories**

The report warned that continued supply disruptions are placing increasing pressure on global oil inventories. According to the IEA, global oil supplies may decline by approximately 5.7 million bpd during 2026 to an average of 100.7 million bpd. Observed global inventories have fallen by more than 500 million barrels since the beginning of the regional conflict, including approximately 95 million barrels in August alone, further straining the refining sector and increasing market sensitivity to any new shocks. The report suggests that ongoing restrictions on navigation and infrastructure in the region could keep Middle East production below pre-conflict levels until the second quarter of 2027, making global markets more reliant on inventories and keeping oil prices vulnerable to further volatility in the coming period.