Why has the West Texas Intermediate (WTI) oil price surpassed Brent? That was the question Rigzone asked Art Hogan, chief market strategist at B. Riley Wealth, and Phil Flynn, a senior market analyst at the PRICE Futures Group.
In response, Hogan noted to Rigzone that WTI “is trading at a rare premium over Brent crude”, which he pointed out is “a reversal of the typical market structure where Brent usually trades several dollars higher”.
“While Brent reflects general global supply concerns, WTI is currently the primary vehicle for traders betting on the duration of U.S. involvement [in the Iran conflict],” Hogan added.
In his response, Hogan outlined that the biggest driver in oil prices on Thursday was that U.S. President Donald Trump’s address on Wednesday “brought with it no line of sight to the opening of the strait of Hormuz”.
“WTI crude oil futures surged more than 12 percent to above $112 per barrel on Thursday, the highest level since June 2022, after President Donald Trump signaled the Iran conflict could continue for weeks and warned of intensified U.S. military action,” Hogan told Rigzone.
“His remarks, which included a pledge to strike Iran ‘extremely hard’ over the coming weeks, raised fears of prolonged disruptions to global oil supply,” he added.
Responding to Rigzone, Flynn said “we have seen record backwardation in WTI”, outlining that “some of that is the unwinding of … Brent-WTI before the long holiday”.
Extended Conflict Scenario
In a BMI report sent to Rigzone by the Fitch Group on Thursday, analysts at BMI outlined that an “extended conflict scenario” has triggered an upward revision to its Brent oil price forecast.
“This month we are making an upward revision to our forecast for Brent crude, from $70 per barrel to $78 per barrel for 2026,” the BMI analysts said in the report.
“This revision reflects a shift in our outlook on the conflict, away from our initial base case assumption of an intense but short lived campaign (lasting no more than four weeks) to our ‘extend to end’ scenario, in which the conflict lasts up to eight weeks,” they added.
“A more extended conflict raises the threat to physical infrastructure, extends disruptions through the Strait of Hormuz, and will entail a longer post-war recovery period, with price impacts spilling over later into the year,” they warned.
The BMI analysts went on to state, however, that “amid a raft of conflict related uncertainties”, the risks to its outlook are “abnormally high, ranging from an immediate end to hostilities and a rapid retracement in Brent, to a multi-month engagement pushing annual average prices above $100 per barrel”.
In this report, the BMI analysts highlighted that Brent has “remained relatively well shielded from the conflict, being one of the contracts posting the softest gains in the past month”.
“Brent is primarily a paper market and has been cushioned by its geographic location and benchmark composition,” they added.
“It has also been highly responsive to U.S. President Donald Trump’s attempts to talk down the oil markets, as illustrated by the pronounced sell offs seen on April 1, March 23 and March 10 in response to social media posts by the president,” they continued.
The BMI analysts went on to state that other parts of the oil complex are, in their view, “more accurately reflecting the physical scarcity arising from the war, including the strong gains seen in regional crudes and in the market for refined fuels, notably middle distillates”.
The analysts noted in the report that their forecast assumes that over the coming weeks, “as the conflict continues and physical pressures build, these strains will spill over more pronouncedly into Brent”.
“Physically settled contracts are already trading at a sizeable premium, with the Dated Brent to Frontline swap currently trading at above $10 per barrel, up from less than $1 per barrel prior to the conflict,” they said.
Stocks Are Being Steadily Drawn Down
In an oil flash note sent to Rigzone on Thursday by Natasha Kaneva, J.P. Morgan’s head of global commodities strategy, analysts at the company, including Kaneva, highlighted that the oil market “entered the shock with ample inventory buffers” but warned that those stocks are now being steadily drawn down.
“That drawdown matters because inventories only provide protection down to a point,” the analysts warned.
“Operational minimum is the floor below which the system begins to lose functionality – typically around 30 days of forward refining throughput cover for OECD commercial inventories,” the analysts said.
“While the system could theoretically operate closer to 24 days – its engineering minimum – doing so would imply severe logistical strain and, in practice, a breakdown in market liquidity,” they added.
“As inventories near this threshold, prices – not stocks – become the primary balancing mechanism,” they highlighted.
“Against that framework, the timing of Russia’s February 2022 invasion of Ukraine came at a particularly vulnerable moment for the oil market,” they analysts said.
“Following deep, Covid-related OPEC+ production cuts, OECD commercial crude inventories have already fallen to roughly 968 million barrels, equivalent to just 27 days of forward refining demand cover,” they continued, noting that this was “uncomfortably close to the operational minimum and leaving the market with limited shock-absorbing capacity”.
The J.P. Morgan analysts went on to state that “today’s disruption is of a different order”.
“The effective loss of 14 million barrels per day from the closure of Hormuz is so large that the market’s immediate adjustment mechanisms narrow to just two: inventory draws and demand destruction”.
They said the latter is already evident across Asia, “particularly in middle distillates and jet”, and noted that the former “is unfolding more quietly, masked by timing lags, floating storage dynamics, and the uneven regional distribution of stocks”.
“In this context, we estimate that OECD commercial crude inventories will draw by roughly 166 million barrels in April and a further 67 million barrels in early May, before hitting the operational minimum of 842 million barrels,” the J.P. Morgan analysts warned.
“At this point, the system is not absorbing the shock – it is running down its buffers while demand is forcibly rationed,” they said.
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