What this real-world oil price says about market stress

The volatile price of Brent futures, the global benchmark for real-world barrels of crude oil, has led energy analysts to warn that acute stress in the physical oil market shows little sign of abating amid concerns about a fragile ceasefire in the Middle East.

An unprecedented gap between dated Brent and Brent has emerged as energy market participants continue to monitor shipping disruptions in the strategically vital Strait of Hormuz. Front-month Brent futuresIt shows that the supply will remain limited for a while.

According to data compiled by Platts, the spot price of Brent futures, which refers to physical cargoes with delivery dates set between 10 days and one month in advance, reached $131.97 per barrel on Thursday afternoon.

That’s an increase of more than 7% from the previous session, but lower than the record high of $144.42 seen on Tuesday, just before the United States and Iran announced a two-week ceasefire.

Dated Brent is valued based on bids, offers and transactions in the open physical spot market; This means it reflects the real-world price tag of crude oil.

Meanwhile, Brent crude futures for June delivery were last traded at $96.51 per barrel, up 0.6% on Friday morning.

“Brent dated $144 is not just a price record. The physical market is telling you that actual barrels are becoming scarce. The market is pricing in scarcity, not just risk,” Andrejka Bernatova, founder and CEO of Dynamix Corporation III, told CNBC via email.

“Even though the ceasefire brought the number down, the underlying stress did not go away and frankly I think the market has exceeded its limits,” Bernatova said.

“The Strait of Hormuz remains almost completely closed, and this ceasefire is fragile at best. Until these flows begin to move again, the $144 pressure is a preview rather than a historical anomaly.”

Roughly 20% of global oil and gas passes through the Strait of Hormuz, a narrow maritime corridor that generally connects the Persian Gulf and the Gulf of Oman. Shipping and maritime experts told CNBC that traffic on the critical energy artery will not normalize anytime soon.

“If refiners delay purchases in anticipation of further price declines while physical flows remain constrained, the product squeeze could worsen even in a period of easing tensions,” said Janiv Shah, vice president of oil markets at Rystad Energy. in question In a research note published Wednesday.

“Brent flat price has fallen, but quick physical differentials are likely to remain stable, tanker prices will remain high and bad crude buyers will continue to pay for the security of limited global supply away from the Gulf,” he continued.

“This suggests that perceived geopolitical risk may decline faster than operational risk,” Shah said.

Strategists at Morgan Stanley said the disruption in the Strait of Hormuz caused a much more severe shock to physical Brent-bound barrels than to the main financial contract of Brent futures.

“Dated Brent is the market’s assessment of what a quick physical sea barrel in Northwest Europe is worth. ICE Brent, on the other hand, is a standardized, centrally cleared futures contract whose final cash settlement is linked to the forward Brent cargo market through a defined expiration process,” Morgan Stanley commodity strategist Martijn Rats said in a research note published Tuesday. he said.

“These two prices are related, but they do not measure the same risk over time or at the same point in the chain.”

Rats said the shift in the market showed that the Brent system had identified where the shock was most severe and immediate.

Pavel Molchanov, senior analyst at Raymond James Investment, said this latest disruption in supply has caused the disruption of traditional trade patterns between various types of crude oil.

“This indicates unprecedented stress and uncertainty in the oil market,” Molchanov told CNBC via email.

Among some examples of this, Molchanov said Brent crude futures are generally trading $3 to $5 per barrel higher than U.S. West Texas Intermediate Although WTI briefly broke above the $10 premium during the Middle East crisis, futures have been on the rise over the past decade.