On Oil’s Latest Vicissitudes

We have seen chatter about the state of global oil supply in financial headlines, especially after last Friday’s drone attack on Saudi Arabia’s East-West pipeline collided with the news the Iran-backed Houthis had seized a firmer grip on the Bab-el-Mandeb Strait in the southern end of the Red Sea. Brent crude oil, the global benchmark for oil, has accordingly extended its earlier rise to roughly $108 per barrel Tuesday.^[i] When oil market noise picks up, we think investors benefit from taking a breath, stepping back and reviewing the fundamentals—particularly on the supply front. Whilst disruptions are real, we think they are also well known, widely watched and could easily prove fleeting, mitigating the threat to the global bull market. 

Oil is coming off an eventful summer. After hitting its 2026 year-to-date high on 7 April ($138.21 per barrel), Brent crude prices retreated, settling to $68.53 per barrel on 2 July—pre-war levels—following the US-Iran interim ceasefire in June.[ii] But prices headed higher again after fighting picked up a week later—breaching the $100 threshold briefly in late July and returning to those levels this month.^[iii] (Which our research shows isn’t automatically negative for stocks or all that high by historical standards when taking inflation adjustment into account.)

The latest development: Drones, reportedly fired from Iran-backed rebel groups in Iraq, struck Saudi Arabia’s East-West pipeline, forcing Riyadh to close the pipeline. The pipeline has become a vital pathway for Saudi crude to reach global markets since it avoids the heavily impacted Strait of Hormuz. The East-West pipeline can carry up to 7 million barrels a day (approximately 2 million for domestic Saudi refiners, 5 million for export).^[iv] Now some fear the disruption will force Saudi Arabia to cut production, which is already down to a 30-year low—stirring additional worries about the state of global oil supply, especially after the International Energy Agency (IEA) forecast supply will contract by -5.7 million barrels a day this year.^[v]

But let us put this in perspective. First, Saudi Arabia is already adapting by raising shipments through the Strait of Hormuz again.^[vi] This had been happening in the early days of September and the Saudis are reportedly trying to further increase supplies.^[vii] There is also debate over how long the pipeline will be out of service, ranging from the nebulous “very soon” to several weeks.^[viii] The latest report indicates the Saudis expect to have it operating at 50% of capacity in days and fully repaired within six weeks.^[ix] Whilst this is a real issue, this doesn’t appear to be a long-term situation either way. And all the headline attention it receives likely mutes much of the equity market impact.

Outside the Middle East, supply isn’t in the dire straits many presume. See production trends elsewhere—particularly in the Americas. The US is on track to hit an all-time high in crude oil production this year at 13.8 million barrels per day (b/d), surpassing 2025’s record of 13.7 million b/d.^[x] Baker Hughes rig counts have climbed in both the US and Canada. US rig counts rose by 3 in the week ended September 11—52 in the past year; for Canada, 3 in the past week and 21 in the past year.^[xi] Rig counts aren’t perfect indicators for future supply, but adding infrastructure aids producers’ output capabilities.

In South America, Brazilian oil output has been bubbling up, with production and exports hitting record highs this year.^[xii] Some research outfits estimate Brazilian production can hit as much as 4 million b/d by 2030.^[xiii] Whilst long-term forecasts are limited and that production won’t address today’s interruptions, Brazil is becoming an increasingly important global oil producer. Similarly, oil production out of Argentina has been exploding thanks to its own shale oil and gas boom, hitting an all-time high of 888 thousand b/d in May thanks to output from its Vaca Muerta shale formation.^[xiv]

We aren’t saying these longer-running production trends offset the latest shortfalls in the Middle East, either in scale or timing. They don’t. But those disruptions are widely watched. Chewed over. Discussed. That pre-prices them into oil, stocks and similarly liquid assets. Meanwhile, we think ongoing production growth outside the Persian Gulf is underappreciated and illustrates how producers respond to price signals.

Moreover, we have plenty of recent evidence surging oil prices won’t unleash a host of permanent economic negatives. Recall, when war broke out near February’s end, experts forecast inflation (prices rising economywide) would heat up again, as would prices for certain products (especially for petrol). And yes, in the short term, prices did jump. In the US, a gallon of US petrol (all grades) rose from $3.07 (£2.28) a gallon in the week ending 23 February to as high as $4.63 (£3.44) a gallon in the week ending 11 May.^[xv] Likewise, US CPI (Consumer Price Index, a government-produced measure of inflation) accelerated from 2.4% y/y in February to 3.3% in March—on its way to a 4.2% rate in May.^[xvi] We don’t understate energy prices’ role here, as they jumped from 0.4% y/y in February to 12.6% in March and as high as 23.0% in May.^[xvii] These trends also held in the UK, as petrol and diesel prices jumped and CPI also accelerated following the outbreak of war.^[xviii]

But what happened after May? Those price categories didn’t keep rising in perpetuity. As oil prices cooled (Exhibit 1), so did related prices. Gasoline prices trended down to below $4.00 (£2.98) a gallon in late June/early July (before bouncing anew). CPI didn’t reheat.^[xix] Brent crude’s retreat from highs was even more dramatic. From highs of $138 per barrel on 7 April, prices fell -50% to the aforementioned July pre-war level. When supply fear waned, prices reversed fast. We see no reason why that can’t recur.

Exhibit 1: Brent Crude Prices This Year

Source: FactSet, as of 15/9/2026. Brent crude oil prices, 31/12/2025 – 14/9/2026.

We think that is worthwhile context to keep in mind right now. Whilst unexpected developments can move prices in the short term, businesses, governments and consumers adjust. We don’t think this time is different—a reality markets have long since recognised and priced in.