Key Takeaways:
A rush by refiners to secure physical oil cargoes has sent a key North Sea crude benchmark to an all-time high of nearly $147 a barrel, as the failure of a US-Iran ceasefire to reopen the Strait of Hormuz deepens a global supply crisis. The record price for Forties Blend, set Thursday, surpasses the highs seen just before the 2008 financial crisis, signaling intense fear in the market over a physical shortage.
"This is not just about high prices. This is about an actual physical shortage, which is playing out," said Amos Hochstein, a former energy adviser to the Biden administration. He warned that if the strait remains blocked, "we can see the market deciding that the straits are closed indefinitely, which could lead not only to an increase in price but to a crisis in Asia."
The stress is most visible in the widening gap between physical and futures markets. While Brent crude for June delivery traded near $97 a barrel, physical North Sea barrels commanded a premium of more than $30, a dislocation that has frozen parts of the derivatives market. Traders reported being unable to trade Brent contracts for difference (CFDs) after the spread breached the Intercontinental Exchange’s $30 threshold, a vital hedging tool for the industry.
The crisis stems from the continued closure of the Strait of Hormuz, a waterway that normally transports 20 percent of global oil supplies. Despite a two-week ceasefire agreement, oil exports through the strait are running at just 8 percent of normal levels, according to a Goldman Sachs client note. Tehran has insisted on maintaining control and charging fees for passage, and only a handful of Iranian-linked vessels have transited since the deal was announced.
Compounding the crisis, Saudi Arabia announced Thursday that recent attacks on its energy infrastructure have reduced its production capacity by 600,000 barrels per day. The damage to the Khurais and Manifa fields represents about 5 percent of the kingdom's 12 million bpd total capacity.
Furthermore, an attack on the critical East-West pipeline, which acts as a bypass to the Strait of Hormuz, has cut throughput by an additional 700,000 bpd. This effectively neutralizes a key logistical alternative for getting crude to market, leaving buyers with few immediate options.
"The physical market are going to stay like that till we get ships moving through the Strait of Hormuz," said Dennis Kissler, senior vice president at BOK Financial. He added that logistical challenges would take at least 20 days to resolve even after the strait reopens, keeping the physical market tight. While US President Trump stated he expects oil to be "flowing very quickly," direct talks between the US and Iran have not yet begun, according to Iran's foreign minister.
This article is for informational purposes only and does not constitute investment advice.
