Oil prices surged to approximately $110 per barrel following attacks on Saudi Arabia's East-West pipeline and Houthi strikes near the Bab el-Mandeb Strait, raising significant concerns about potential disruptions to global oil supply. The East-West pipeline typically transports around 4 million barrels per day, representing approximately 4 percent of global oil supply, according to analysis from KGI Private Wealth as of September 21, 2026. The immediate spike in oil prices reflects heightened geopolitical tensions, yet KGI Private Wealth analysts expect the rally to be ultimately limited by fundamental market conditions.
The surge in Dated Brent crude, which reached 131.765 dollars, above Brent futures prices, highlights tightening conditions in the physical crude oil market, indicating stress in the spot market for North Sea crude oil cargoes. Despite supply concerns, downward pressure on prices stems from weakening demand expectations. The International Energy Agency, U.S.
Energy Information Administration, and OPEC have all revised their 2026 oil demand growth forecasts downward by 2.5, 2.2, and 1.0 million barrels per day respectively. Additionally, Strategic Petroleum Reserve drawdowns from OECD countries have slowed, providing less additional supply to offset supply disruptions. Middle Eastern producers possess options to partially mitigate pipeline disruptions through alternative export routes, including shadow fleets, U.S.-protected shipping corridors, the Gulf of Oman, Suez Canal, and potential pipeline recovery.
These alternatives suggest that while supply concerns are legitimate, the market may absorb disruptions without sustained price escalation. KGI Private Wealth's base case scenario assumes strikes continue without escalation, targeting a full-year 2026 average of $85-90 per barrel, with prices of $90-95 per barrel for the remainder of 2026. This assessment aligns with historical precedent, as Brent crude averaged approximately $90 during a 27-day period from July 27 through September 7, 2026, when labor strikes caused supply disruptions, prior to accounting for the current Saudi attacks and Red Sea tensions.
Upside scenarios could push Brent above $120 per barrel if further production damage, complete shipping halts, or blocked Saudi export routes materialize. Conversely, successful de-escalation efforts could bring prices toward $75 per barrel, as occurred during an April 2026 ceasefire when prices fell rapidly. Tightened refining capacity presents an additional constraint on price moderation.
Russian refinery throughput has declined 30 percent year-over-year, constraining refined product exports from the region. U.S. refinery utilization already operates near maximum capacity, limiting the market's ability to increase refined product supply despite elevated crude prices. This supply-demand imbalance for refined products could maintain inflationary pressure on energy costs despite potential crude price moderation.
The analysis suggests that while crude prices spike on fear-driven supply disruptions, fundamental factors including weakening demand growth and alternative export routes provide anchoring support that should limit sustained price appreciation beyond the $90-95 per barrel range through year-end 2026.
Source: kgieworld.co.th