Dr. Hamad Kasasbeh

How can Brent crude remain close to $110 a barrel while major Gulf supplies are disrupted and vital routes such as the Strait of Hormuz and Bab el-Mandeb face simultaneous pressure? That is the central paradox: the supply disruption appears substantial, yet Brent has not fully reflected it, unlike March 2022, when the benchmark touched $139 as the Russia-Ukraine war erupted. Relative price stability, however, does not mean the supply shock is limited. Rather, it means the market is temporarily distributing its cost across weaker demand, declining inventories, rerouted barrels, and higher transport and insurance expenses.

On the supply side, the pressure is clear. The International Energy Agency expects average global oil supply in 2026 to be around 5.7 million barrels per day lower than a year earlier, while more than 10 million barrels per day of Gulf production remained offline in August. Yet markets do not price the scale of disruption alone; they price the volume of oil that actually disappears from buyers' reach. If a barrel still arrives through a longer route or from an alternative source, its cost rises, but it remains available. That is the difference between losing barrels and paying more to reach them.

Demand, meanwhile, is acting as a counterweight. The same agency expects global oil demand to decline by around 2.5 million barrels per day in 2026, with notable weakness in Asia. This helps explain much of Brent's relative stability: the market is facing less supply, but also less aggressive demand. Part of the rebalancing is therefore taking place through weaker consumption, rather than forcing price alone to close the gap.

Inventories are what have bought the market time. Observed global oil stocks have fallen by around 507 million barrels since February, including 95 million barrels in August alone. China is an important example of this flexibility: it can reduce spot purchases and draw, in part, on inventories accumulated earlier. But that cushion erodes with every additional withdrawal. Inventories do not eliminate the shock; they postpone its full transmission into prices while simultaneously reducing the safety margin against the next disruption.

Supply flexibility outside the region has also helped narrow the gap. The United States is moving toward record production, while Russian barrels continue to be redirected toward Asia. At the same time, part of OPEC+'s spare production capacity is not as readily available as headline figures suggest while transport and production constraints persist. One of the crisis's clearest lessons is that having the capacity to produce is not enough if the barrel cannot reach the market. Replacement supply therefore depends on a combination of alternative production, redirected flows, and inventory management.

This becomes even more important as winter approaches. The first point of pressure may emerge in refined products rather than crude oil itself. Diesel and gasoil account for roughly 30% of global oil demand, while the U.S. Energy Information Administration expects American distillate inventories to fall below 100 million barrels. If winter turns cold while refining and transport constraints remain in place, fuel costs could rise even if Brent stays below previous peaks, because the market would become more sensitive to any shortage of diesel and heating fuels.

This carries an important message for oil-importing countries. The current environment calls for a review of strategic inventory safety margins, not only for crude oil but also for diesel, heating fuel, and other essential products, alongside broader source diversification and stronger capacity for rapid stock drawdowns during disruptions. Yet inventory building should be gradual and disciplined: broad precautionary buying in an already tight market could itself add pressure to prices. Strategic reserves are a tool for managing supply risk, not a vehicle for speculating on the direction of prices.

Brent's relative stability at current levels therefore does not mean that the market has moved beyond the shock. What has happened is that the world has spread its cost across weaker demand, inventories, alternative supplies, and higher transport costs. Winter will be the real test of that balance: if supply recovers before demand intensifies, pressure may begin to ease; but if inventories erode first, the cost could quickly migrate into prices. The market can buy time with inventories and alternatives, but it cannot buy time indefinitely.