A $22 Gap That Barrels Do Not Explain

Eight months after the war with Iran began, Brent trades above $116. JP Morgan's model puts fair value at $94, a gap of roughly 23%. The benchmarks are set to post a fourth straight monthly gain, even though Gulf exports have returned to pre-conflict levels.

Shipping, the New Weak Point

Volumes do not tell the whole story. Several tankers have been hit by drones or missiles in recent weeks. Saudi Arabia is using ship-to-ship transfers off Oman to avoid Hormuz and the Red Sea, creating a shortage of vessels. Freight and insurance have hit records, to the point that producer countries must discount their crude to stimulate demand. The return of flows therefore cannot be considered durable as long as the risk of attack remains high.

Refining, the Big Winner

The war against Iran and Ukrainian strikes on Russian refineries have knocked out about 10% of global refining capacity. The diesel market is in deficit and margins are soaring. ExxonMobil is the illustration: its refineries on the US Gulf Coast are running at 100% of capacity. The group reports $15.4 billion in third-quarter profit, more than double last year. Its energy products generated $9.05 billion in adjusted profit, against $4.1 billion in the previous quarter. With $25.7 billion in operating cash flow, Exxon returned $9.4 billion to shareholders and announced $20 billion in buybacks through 2027. The Beaumont expansion, costing $2 billion and approved well before the crisis, added 250,000 barrels per day of capacity. It partly explains the group's ability to profit from the diesel shortage.

What Nuances the Picture

The picture is not uniform. Exxon's upstream result falls to $7.3 billion, against $9.2 billion in the second quarter, as crude eases. Physical prices have also retreated below their early-year peaks, signaling a gradual convergence with futures markets. With the group's refineries maxed out, volume growth will depend on new investment. Finally, the stock index variations in the file are inconsistent and have not been exploited.

A Premium That Hinges on the November 3 Deadline

Price resilience also rests on expectations of a resumption of hostilities after the US elections. Washington and Tehran have both hinted they are ready. The head of the International Energy Agency, Fatih Birol, sees no credible scenario for a return to pre-war conditions next year. As long as refining and maritime security are not restored, Brent above its fundamental value remains consistent with the facts, and well-positioned refiners are benefiting. Its duration depends on a peace signal that the file does not allow us to anticipate.

This article was written with the assistance of artificial intelligence and verified by our editorial team.