Brent crude is back above the psychologically important $100-a-barrel mark, returning to levels last seen in July as fresh disruptions to Middle East oil flows revive supply fears. But the bigger warning may be coming from the physical market. Oman/Dubai crude for November delivery is trading around $121 a barrel, a sizeable premium to Brent, suggesting that the price of prompt Middle East barrels is once again running ahead of the global benchmark.
Brent crude futures settled at $101.21 a barrel on Wednesday, up 3.4 percent, after Iran said it had attacked 10 ships near the Strait of Hormuz following US strikes that sank five Iranian oil tankers. Brent is now up 44 percent from its July lows.
The nearly $20 gap between Brent and Oman/Dubai crude is an unusual move and pointed to growing stress in the physical market.
“Middle Eastern benchmarks (Oman/Dubai) trade at a significant premium of around $20 a barrel compared to Atlantic Basin benchmarks (Brent), indicating a structural anomaly,” said Aamir Makda, commodity analyst at Choice Broking.
Brent typically trades at a premium because it is a lighter, sweeter crude and easier to refine. The current inversion, therefore, suggested that the market is placing a much higher premium on the availability of Middle Eastern barrels.