Brent futures may have sunk below $100 per barrel after the U.S.-Iran ceasefire was announced, but constraints are intensifying amid the supply shock, with the physical price of a key North Sea blend surging on Thursday to a record high of as much as $147 per barrel.
Forties Blend, the physical marker for immediate delivery of the crude from the North Sea, surpassed the previous record from 2008 and hit $147 per barrel on Thursday, according to data from LSEG cited by the Financial Times.
The price of the physical crude for immediate delivery is now $50 per barrel higher than the Brent Crude futures, which traded at around $97 a barrel early on Friday.
The surge in physical crude prices reflects the massive supply shock, with about 10 million barrels per day (bpd) of crude trapped in the Strait of Hormuz and unable to go to refiners.
So buyers are turning to crudes from producers outside of the Middle East, and the prices of these crudes are soaring to record highs.
The huge $50 a barrel premium of the physical crude over the futures prices signals that the oil supply shock is enormous, even if the sentiment on the futures market is tentatively optimistic that the ceasefire could be the beginning of the end of the crisis.
The physical crude prices are set to remain very high and above futures prices until the Strait of Hormuz is effectively closed, analysts say.
Despite the ceasefire, the Strait of Hormuz has not reopened, Iran continues to have discretion on who passes and who doesn’t, and vessel movement is still limited to only about a dozen ships per day, not all of which are tankers.
The divergence between the price of spot cargoes and futures “reinforces the message seen across the forward curve: the issue is not long-term availability, but near-term accessibility,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said in a note on Thursday.
By Tsvetana Paraskova for Oilprice.com
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