Highlights:

• Saudi rerouting restores Gulf flows, but Europe faces missing October crude allocations.
• Europe’s jet-fuel squeeze widens as gas inflation threatens to reach consumers faster.
• Russian refinery outages deepen supply risks while governments reassess energy security.

Oil Prices Ease, but Supply Risks Remain

Oil prices weakened on Monday as markets weighed stronger Saudi export flows and signs of possible diplomatic progress against continued restrictions around the Strait of Hormuz. Shipping activity through the strategic waterway remains below normal levels, although Saudi Arabia has increased crude movements through alternative Gulf routes.

Saudi crude exports through Hormuz have recently averaged around 2.9 million barrels per day, highlighting efforts to keep supplies moving despite infrastructure and security disruptions.

Europe Faces Reduced Saudi Supply

Europe is not benefiting equally from these alternative routes. Saudi Aramco reportedly informed some European refiners that October term crude deliveries would not be available following damage to the East-West pipeline, which affected exports through the Red Sea.

More Saudi barrels are instead being routed through the Gulf and transferred near Oman. European refiners may therefore need to secure alternative grades, potentially increasing transportation costs and tightening regional supply conditions.

Fuel and Gas Pressures Broaden

Europe’s energy stress is extending beyond diesel into aviation fuel. The region could face a jet-fuel shortfall of approximately 510,000 barrels per day next quarter, while inventories at the Amsterdam-Rotterdam-Antwerp trading hub have fallen to their lowest level since 2019.

Wholesale European gas prices are also more than 140% above year-ago levels. Higher gas costs could pass into household inflation more quickly, with price changes potentially reaching consumers within one to three months across several euro-area economies.

Russian Energy Infrastructure Comes Under Pressure

Ukraine’s military has claimed that long-range strikes have affected around 45% of Russia’s total oil-refining capacity, although the scale of the disruption has not been independently confirmed.

Recent drone and missile attacks have also targeted areas around Moscow and Russian energy infrastructure, adding uncertainty around refined-product availability.

European security concerns remain elevated as intelligence assessments continue to examine the possibility of broader Russian military actions against NATO members, although no imminent attack has been established.

Coal Demand Climbs as Energy Security Takes Priority

Global coal demand is expected to rise around 1.2% to a record 8.94 billion tonnes in 2026 as expensive natural gas encourages increased coal consumption in several markets.

At the same time, Europe continues to resist new Arctic oil and gas drilling despite calls for additional production, highlighting the growing tension between immediate energy-security needs and long-term climate commitments.

Australia Faces a Renewed Inflation and Market Risk

Australia is unlikely to remain insulated from prolonged global energy disruption. Higher crude and refined-fuel prices could lift local petrol, diesel and aviation costs, increasing pressure on transport, logistics, airlines and energy-intensive industries. A sustained rise in fuel expenses would also risk adding another layer of inflation at a time when interest-rate expectations remain highly sensitive to price pressures.

For the ASX, elevated oil and gas prices could support earnings sentiment across energy producers and selected LNG-linked companies. Coal exporters may also benefit if expensive gas encourages further fuel switching. However, the broader market impact could be less favourable if higher energy costs lift bond yields, weaken household purchasing power and compress corporate margins.

Investors may therefore face a divided market: energy and selected resource stocks could gain support, while consumer, transport and rate-sensitive sectors remain exposed to higher operating costs and tighter financial conditions.

Outlook: Can Supply Workarounds Hold?

Oil prices may remain highly volatile as competing forces shape the market. Increased Saudi exports and diplomatic progress could ease crude prices, while European fuel shortages, higher gas costs, Russian refinery disruptions and more expensive alternative sourcing could keep supply risks elevated.

For Australia, the central risk is that a prolonged energy shock feeds into domestic inflation through transport, fuel and supply-chain costs. That could complicate the interest-rate outlook and keep pressure on equity valuations even if higher commodity prices support selected ASX energy and resource companies.

The key issue is whether logistical workarounds can offset fresh geopolitical disruptions. With winter approaching, developments around Hormuz, Saudi infrastructure, European fuel inventories and Russian refining capacity could remain major drivers of global inflation, energy costs and financial markets.

Note- All data presented is based on information available at the time of writing.

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