A Gap of More Than $20 Versus Fundamentals

Brent trades above $116 a barrel, while the fair-value model of JP Morgan's global head of commodities, Natasha Kaneva, puts it at $94. On Monday in Asia, the January contract fell 1.8% to $111.43 and WTI dropped 2% to $102.04. The pullback follows a gain of nearly 15% in October, and the price remains well above the model. Announcements of resumed flows out of Hormuz have therefore not been enough to bring prices down sustainably.

Why Volumes No Longer Tell the Whole Story

The reason lies in the cost and risk of transport. At least four vessels have been hit in the strait since Thursday. Freight and insurance rates are hitting records, and Saudi Arabia is resorting to ship-to-ship transfers off Oman to limit its tankers' exposure. In this context, restored flows remain fragile. The supply cushion from the start of the conflict is now exhausted, and futures prices are gradually converging with physical prices, which have stayed higher. The head of the International Energy Agency, Fatih Birol, does not see a return to pre-war levels next year.

Refiners, the First Beneficiaries

Refineries are running near capacity to fill shortages, which supports refining and trading margins. BP thus reported underlying profit of $8.46 billion in the third quarter, against $2.2 billion a year earlier and $7.33 billion expected by analysts. The group attributes this to significantly higher refining margins and a sharply higher gas trading and marketing result. Meanwhile, diesel is hitting historic highs at the pump in the UK, Europe and the US.

A Strain Spreading to European Power and Gas

Day-ahead electricity prices on October 30 were around €250/MWh in the Czech Republic (250.85), Switzerland (254.14) and western Denmark (250.56), and €211.19 in Portugal, against €77.51 in Finland. These regional gaps show the shock is not uniform. On gas, the EU received 12.18 million tonnes of Russian LNG between January and September, 9.5% more than a year earlier, for about $8.79 billion. This dependence persists as Brussels prepares to ban Russian imports.

Limits to Keep in Mind

JP Morgan's model suggests part of the price is a risk premium that could deflate in the event of de-escalation. Talks between Iran and Qatar continue, while analysts float $120 in the event of hostilities resuming after the US elections. Gas flow data are also patchy: several values are zero or missing, and the Emden entry flow drops from 402.5 to 77.6 GWh/d between October 30 and 31, which may reflect incomplete publication. The file also provides no figures on refining capacity.

What Can Reasonably Be Concluded

As long as maritime risk and political uncertainty persist, the crude price will remain disconnected from exported volumes alone. Refiners and traders benefit from this regime, as BP illustrates. Its duration depends on factors that available data do not allow us to quantify.

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