National: Kuwaiti Oil Price Hits 4-Month High
A report by National Bank of Kuwait noted the return of oil prices to above $100 per barrel in September amid rising geopolitical risks, which threatened to push the global oil market into a deeper deficit. This occurred as global oil inventories declined at a record pace, despite alternative measures adopted by regional producers and increased exports from outside the region. In the absence of an agreement to fully reopen the Strait of Hormuz in the near term, global oil supplies will remain constrained, keeping prices at elevated levels. Futures and physical oil markets, in particular, continue to indicate an extremely tight supply situation.
The report noted that the rise in the price of Kuwaiti Export Crude to its highest level in four months in mid-September 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 sought after by Asian refineries.
It also highlighted sharp price jumps in refined oil product markets, particularly for diesel/gasoil (the global industrial fuel), gasoline, and jet fuel. In the United States, diesel prices exceeded $6.50 per gallon, a record level, while the average gasoline price 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 due to a "perfect storm" of refined product shortages stemming from the Russia-Ukraine and US-Iran conflicts, as well as Chinese export curbs. Refining margins and the spread between crude oil and refined products also surged sharply, with diesel prices surpassing $100 per barrel.
The report stated that the International Energy Agency (IEA) has gradually lowered its September oil demand forecast by a significant 940,000 barrels per day. It now expects demand to contract by an average of 2.5 million barrels per day in 2026, reaching 102.5 million barrels per day.
For 2027, the agency anticipates a strong demand rebound of 2.6 million barrels per day, bringing total demand to 105.1 million barrels per day, offsetting this year’s losses. This recovery will be driven by the normalization of supplies and easing price pressures. A return to pre-conflict levels (105 million barrels per day) is unlikely before late 2027.
The report noted that alternative measures adopted by Gulf producers have proven resilient, with flows increasing since the collapse of the US-Iran memorandum of understanding. It supported this with OPEC production data, which showed regional production rising for the fourth consecutive month in August. 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 compared to the declines recorded in April, reaching 3.4 million barrels per day and 1.9 million barrels per day, respectively, in August.
The report addressed IEA data on the pace of global inventory drawdowns, which stood at 2.8 million barrels per day over the past six months and accelerated to an unprecedented 3.1 million barrels per day in August. Observed inventories fell by a cumulative 507 million barrels since the crisis began (from approximately 8.3 billion barrels to 7.8 billion barrels). Meanwhile, IEA member countries collectively drew 300 million barrels from their emergency reserves (out of 400 million barrels pledged in March).
In the United States, Strategic Petroleum Reserve levels fell to 285 million barrels, the lowest since 1982, approaching the operational minimum range of 250–300 million barrels, beyond which drawdowns become more difficult.
Drawdowns from reserves served as the primary tool to meet demand and prevent oil prices from rising further, aided by high inventory coverage levels prior to the outbreak of the crisis.
OECD oil stocks (commercial land-based inventories and the Strategic Petroleum Reserve) declined to 3.82 billion barrels by the end of June, representing a drop equivalent to at least 2.6 million barrels per day since the end of the first quarter, according to OPEC data. The focus on crude oil has overshadowed the decline in middle distillate stocks, which fell below their five-year average, and pushed European jet fuel inventories to their lowest level in seven years.
The report concluded that forecasting oil price trends under current conditions is highly uncertain. This depends almost entirely on reaching a resolution to the conflict, or at the very least, the return of Hormuz Strait flows to pre-conflict levels. Short-term fundamentals point to strong upward pressure, supporting oil prices higher than those reflected in futures markets, as evidenced by actual crude prices. Moreover, futures prices may not adequately account for the need, or even the likelihood, of a prolonged period of global inventory rebuilding once Gulf supplies return to normal.
The report suggested that stressed refined product markets, amid limited refining capacity and depleted inventories, could drive the price curve higher, with room for further short-term price increases before consumption is negatively impacted. It expects Brent crude to trade around $95 per barrel in the fourth quarter (averaging $90 in 2026), before declining to an average of $80 in 2027, driven by expectations of rising supplies, weak demand, and global economic growth at a faster-than-expected pace.
