01.10.2026 - Oil flows recover

Middle East crude oil flows are returning close to normal, with the 10-day average of exports reaching 17.5 million barrels per day, around 98% of pre-war levels. The recovery has been supported by Saudi Arabia restoring flows through its East-West pipeline.

However, the improvement in crude exports masks continued severe disruption in refined fuel supplies. Refined products shipped through the Strait of Hormuz are averaging only 677’000 barrels per day, compared with 3.6 million before the war. Combined crude and product shipments remain at around 80% of pre-war levels.

The resulting global fuel shortage, compounded by Ukrainian attacks on Russian refineries, has pushed diesel prices in the US to record highs. This represents an important economic risk, as higher diesel prices increase transportation and production costs and can add further inflationary pressure.

Meanwhile, security conditions in the Strait of Hormuz remain far from normal. Iran continues to attack tankers, forcing exporters to adopt alternative logistics. More than 70% of crude crossing Hormuz in August was transferred between tankers off the UAE or Oman, using a shuttle system protected by the US military.

Markets:

• Equities: Mixed - Asian markets positive this morning, Europe down while US markets are more or less unchanged thanks to tech sector

• Bonds: yields moving higher - US 2y yield above 4.85%, US 10y yield above 5.31%, Japan 10y yield 3.10%

• Commodities: Oil prices higher, WTI at USD 92/barrel and Brent around USD 102/barrel;
  Precious metals prices marginally lower, gold USD 4’150/oz, silver USD 60/oz

• Currencies: US dollar moving higher - Japanese Yen unchanged USDJPY 158

• Cryptos: unchanged - Bitcoin around USD 84k

• Volatility: The VIX index higher, above 17 (last chance for hedging!)

My View: Crude oil availability has improved, but the broader energy crisis has not normalized. Instead, pressure is increasingly shifting toward refined fuels, particularly diesel, while Middle East exports remain dependent on costly and potentially unsustainable security arrangements.

I also continue to see upside pressure on oil prices. Demand should remain elevated as depleted inventories need to be rebuilt, while the risk of renewed supply disruptions remains significant.

The US is relatively well positioned to manage its domestic oil requirements. However, regions that remain heavily dependent on imported energy, particularly Europe and Asia, are more exposed to continued supply constraints.

At the same time, the shortage of refined products is unlikely to disappear quickly. This keeps the risk to energy prices tilted to the upside and could maintain inflationary pressure even as crude oil flows improve.

Meanwhile, stress in the bond market continues to intensify. With the US 10-year yield above 5.3%, financial conditions are tightening further.
Bonds are already sending a clear warning signal. The question is what follows next.
The longer yields remain at these levels, or continue to rise, the greater the pressure on equity valuations, financing costs, leveraged positions and economic activity.

I increasingly believe that the entire market structure is vulnerable to a sharp adjustment. That does not mean markets have to fall immediately, but the risk is growing with every day that bond yields remain under pressure while equities continue to price in a highly favorable outcome.

Be prepared for a potentially sharp move lower.

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