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Oman leading the way as sanctions hits physical market

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SEB - analysbrev på råvaror

SEB - Prognoser på råvaror - CommodityRarely have we seen such a brutal break of a major level as when Brent crude broke above $80/bl on September 24. It did not spend a second looking back (re-testing the $80/bl level etc) but instead just charged directly higher. In hindsight we can see that it was really the Oman crude benchmark which was leading the way. This is very unusual as it is normally the light sweet grades like WTI and Brent which takes the lead. The Oman benchmark with gravity and sulphur of (API; S%) = (31.3˚; 1.4%) is the typical medium-heavy and sour grade benchmark of the Middle East. Most modern refineries are built exactly for this kind of crude grade because that is the kind of crude which is most abundant in the world.

Bjarne Schieldrop, Chief analyst commodities at SEB

Bjarne Schieldrop, Chief analyst commodities

Iran’ crudes have an average gravity of API = 31 but has a higher sulphur content of 2.2%. It is nonetheless a medium-heavy, sour crude now being ripped out of the market. One could say that the actual implementation of the US sanctions towards Iran do not fully kick in before November 4. The fact is however that the real consumers of crude oil, the refineries, are doing their physical purchasing on a typical 1 to 3 months forward basis. November is now thus in the middle of this physical purchasing window.

Privately owned refineries around the world cannot afford to cross swords with Donald Trump’ Iran sanctions. They cannot afford to lose access to the global financial system (where US banks are tightly interwoven), to the international ship insurance market or to the US market in general. Thus they all do the natural thing: They do not contract physical oil from Iran for November onwards.

Thus all their physical crude purchases for the month of November and onwards are now hitting other crude oil producers instead thus doubling up the orders hitting these other producers. The sanctions are thus now fully hitting the physical market but on a two to three months forward horizon. Thus as of yet we do not see it reflected in the weekly inventory numbers. It is however still fully hitting the physical market.

Since the refineries currently using Iran crude are made to process medium-heavy, sour crude their purchases are now naturally re-directed towards other producers of this type of crude. That means Middle East producers. That means the Oman crude benchmark and not the Brent crude benchmark. This means that the Oman benchmark could continue to lead the way on this issue. So in order to look for direction of Brent crude one should keep a close eye on the Oman benchmark these days.

If we look at the Brent – Oman spread we see that Brent crude is only trading $0.4/bl above Oman. That is a very small margin versus the ytd average of $2.2/bl. This tighter spread may be the new norm now in this tighter medium sour crude market (due to Iran sanctions). However, if the Oman benchmark holds its stand at current level it does look like Brent is likely going to be pushed upwards. Overall it looks likely that Oman is going to be pushed yet higher and that Brent will be riding on the top of that wave higher.

When we look at the graphical development of the Oman crude price the impact from the Iran sanctions now hitting the forward physical purchasing window of the world’s refineries looks brutal. Oman has taken a pause in order to let Brent crude catch up with its upwards move but Brent needs to move another dollar or two upwards before normal spreads are re-established.

Unless the other Middle East producers offers sufficient medium sour crude on the market in this forward window in order to offset the loss of Iranian supply then Oman, your direction is up and Brent will follow or float higher on top.

Ch1: Oman 1mth and Brent 1mth. Oman led the way to break above $80/bl

Oman 1mth and Brent 1mth. Oman led the way to break above $80/bl

Ch2: Oman crude grade versus Iran crude grades

Oman crude grade versus Iran crude grades

Ch3: Global crude volumes by grades according to ENI

Global crude volumes by grades according to ENI

Analys

Volatile but going nowhere. Brent crude circles USD 66 as market weighs surplus vs risk

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Brent crude is essentially flat on the week, but after a volatile ride. Prices started Monday near USD 65.5/bl, climbed steadily to a mid-week high of USD 67.8/bl on Wednesday evening, before falling sharply – losing about USD 2/bl during Thursday’s session.

Ole R. Hvalbye, Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

Brent is currently trading around USD 65.8/bl, right back where it began. The volatility reflects the market’s ongoing struggle to balance growing surplus risks against persistent geopolitical uncertainty and resilient refined product margins. Thursday’s slide snapped a three-day rally and came largely in response to a string of bearish signals, most notably from the IEA’s updated short-term outlook.

The IEA now projects record global oversupply in 2026, reinforcing concerns flagged earlier by the U.S. EIA, which already sees inventories building this quarter. The forecast comes just days after OPEC+ confirmed it will continue returning idle barrels to the market in October – albeit at a slower pace of +137,000 bl/d. While modest, the move underscores a steady push to reclaim market share and adds to supply-side pressure into year-end.

Thursday’s price drop also followed geopolitical incidences: Israeli airstrikes reportedly targeted Hamas leadership in Doha, while Russian drones crossed into Polish airspace – events that initially sent crude higher as traders covered short positions.

Yet, sentiment remains broadly cautious. Strong refining margins and low inventories at key pricing hubs like Europe continue to support the downside. Chinese stockpiling of discounted Russian barrels and tightness in refined product markets – especially diesel – are also lending support.

On the demand side, the IEA revised up its 2025 global demand growth forecast by 60,000 bl/d to 740,000 bl/d YoY, while leaving 2026 unchanged at 698,000 bl/d. Interestingly, the agency also signaled that its next long-term report could show global oil demand rising through 2050.

Meanwhile, OPEC offered a contrasting view in its latest Monthly Oil Market Report, maintaining expectations for a supply deficit both this year and next, even as its members raise output. The group kept its demand growth estimates for 2025 and 2026 unchanged at 1.29 million bl/d and 1.38 million bl/d, respectively.

We continue to watch whether the bearish supply outlook will outweigh geopolitical risk, and if Brent can continue to find support above USD 65/bl – a level increasingly seen as a soft floor for OPEC+ policy.

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Analys

Waiting for the surplus while we worry about Israel and Qatar

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Brent crude makes some gains as Israel’s attack on Hamas in Qatar rattles markets. Brent crude spiked to a high of USD 67.38/b yesterday as Israel made a strike on Hamas in Qatar. But it  wasn’t able to hold on to that level and only closed up 0.6% in the end at USD 66.39/b. This morning it is starting on the up with a gain of 0.9% at USD 67/b. Still rattled by Israel’s attack on Hamas in Qatar yesterday. Brent is getting some help on the margin this morning with Asian equities higher and copper gaining half a percent. But the dark cloud of surplus ahead is nonetheless hanging over the market with Brent trading two dollar lower than last Tuesday.

Bjarne Schieldrop, Chief analyst commodities, SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Geopolitical risk premiums in oil rarely lasts long unless actual supply disruption kicks in. While Israel’s attack on Hamas in Qatar is shocking, the geopolitical risk lifting crude oil yesterday and this morning is unlikely to last very long as such geopolitical risk premiums usually do not last long unless real disruption kicks in.

US API data yesterday indicated a US crude and product stock build last week of 3.1 mb. The US API last evening released partial US oil inventory data indicating that US crude stocks rose 1.3 mb and middle distillates rose 1.5 mb while gasoline rose 0.3 mb. In total a bit more than 3 mb increase. US crude and product stocks usually rise around 1 mb per week this time of year. So US commercial crude and product stock rose 2 mb over the past week adjusted for the seasonal norm. Official and complete data are due today at 16:30.

A 2 mb/week seasonally adj. US stock build implies a 1 – 1.4 mb/d global surplus if it is persistent. Assume that if the global oil market is running a surplus then some 20% to 30% of that surplus ends up in US commercial inventories. A 2 mb seasonally adjusted inventory build equals 286 kb/d. Divide by 0.2 to 0.3 and we get an implied global surplus of 950 kb/d to 1430 kb/d. A 2 mb/week seasonally adjusted build in US oil inventories is close to noise unless it is a persistent pattern every week.

US IEA STEO oil report: Robust surplus ahead and Brent averaging USD 51/b in 2026. The US EIA yesterday released its monthly STEO oil report. It projected a large and persistent surplus ahead. It estimates a global surplus of 2.2 m/d from September to December this year. A 2.4 mb/d surplus in Q1-26 and an average surplus for 2026 of 1.6 mb/d resulting in an average Brent crude oil price of USD 51/b next year. And that includes an assumption where OPEC crude oil production only averages 27.8 mb/d in 2026 versus 27.0 mb/d in 2024 and 28.6 mb/d in August.

Brent will feel the bear-pressure once US/OECD stocks starts visible build. In the meanwhile the oil market sits waiting for this projected surplus to materialize in US and OECD inventories. Once they visibly starts to build on a consistent basis, then Brent crude will likely quickly lose altitude. And unless some unforeseen supply disruption kicks in, it is bound to happen.

US IEA STEO September report. In total not much different than it was in January

US IEA STEO September report. In total not much different than it was in January
Source: SEB graph. US IEA data

US IEA STEO September report. US crude oil production contracting in 2026, but NGLs still growing. Close to zero net liquids growth in total.

US IEA STEO September report. US crude oil production contracting in 2026, but NGLs still growing. Close to zero net liquids growth in total.
Source: SEB graph. US IEA data
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Analys

Brent crude sticks around $66 as OPEC+ begins the ’slow return’

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Brent crude touched a low of USD 65.07 per barrel on Friday evening before rebounding sharply by USD 2 to USD 67.04 by mid-day Monday. The rally came despite confirmation from OPEC+ of a measured production increase starting next month. Prices have since eased slightly, down USD 0.6 to around USD 66.50 this morning, as the market evaluates the group’s policy, evolving demand signals, and rising geopolitical tension.

Ole R. Hvalbye, Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

On Sunday, OPEC+ approved a 137,000 barrels-per-day increase in collective output beginning in October – a cautious first step in unwinding the final tranche of 1.66 million barrels per day in voluntary cuts, originally set to remain off the market through end-2026. Further adjustments will depend on ”evolving market conditions.” While the pace is modest – especially relative to prior monthly hikes – the signal is clear: OPEC+ is methodically re-entering the market with a strategic intent to reclaim lost market share, rather than defend high prices.

This shift in tone comes as Saudi Aramco also trimmed its official selling prices for Asian buyers, further reinforcing the group’s tilt toward a volume-over-price strategy. We see this as a clear message: OPEC+ intends to expand market share through steady production increases, and a lower price point – potentially below USD 65/b – may be necessary to stimulate demand and crowd out higher-cost competitors, particularly U.S. shale, where average break-evens remain around WTI USD 50/b.

Despite the policy shift, oil prices have held firm. Brent is still hovering near USD 66.50/b, supported by low U.S. and OECD inventories, where crude and product stocks remain well below seasonal norms, keeping front-month backwardation intact. Also, the low inventory levels at key pricing hubs in Europe and continued stockpiling by Chinese refiners are also lending resilience to prices. Tightness in refined product markets, especially diesel, has further underpinned this.

Geopolitical developments are also injecting a slight risk premium. Over the weekend, Russia launched its most intense air assault on Kyiv since the war began, damaging central government infrastructure. This escalation comes as the EU weighs fresh sanctions on Russian oil trade and financial institutions. Several European leaders are expected in Washington this week to coordinate on Ukraine strategy – and the prospect of tighter restrictions on Russian crude could re-emerge as a price stabilizer.

In Asia, China’s crude oil imports rose to 49.5 million tons in August, up 0.8% YoY. The rise coincides with increased Chinese interest in Russian Urals, offered at a discount during falling Indian demand. Chinese refiners appear to be capitalizing on this arbitrage while avoiding direct exposure to U.S. trade penalties.

Going forward, our attention turns to the data calendar. The EIA’s STEO is due today (Tuesday), followed by the IEA and OPEC monthly oil market reports on Thursday. With a pending supply surplus projected during the fourth quarter and into 2026, markets will dissect these updates for any changes in demand assumptions and non-OPEC supply growth. Stay tuned!

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