Oil: Physical tightness and supply shocks reshape pricing – BNY

BNY‘s Head of Markets Macro Strategy Bob Savage highlights extreme dislocation in Oil markets, with North Sea Forties Blend near $147/bbl and Dated Brent far above futures as Iran’s control of the Strait of Hormuz cuts flows to 8% of normal. Additional supply losses from Saudi Arabia deepen fears of prolonged shortages, particularly in Asia, keeping Brent, WTI and Omani Crude supported.

Physical stress drives Brent dislocation

“Global oil markets saw acute physical tightness as North Sea Forties Blend surged to nearly $147/bbl, while Dated Brent rose 7% to $131.96, significantly above Brent futures at $97.20, reflecting severe dislocation between physical and paper markets. The disruption stems from Iran maintaining control over the Strait of Hormuz, where oil flows have dropped to just 8% of normal levels, constraining a route that typically handles 20% of global supply.”

“Two key hopes for this weekends talks in Pakistan revolve around shipping resolutions in the Strait of Hormuz and extending the ceasefire to the region. The ”toll“ collection plan that Iran floated will be a key point. Talk of a $1/bbl toll fee elicited a Trump warning overnight. The last 24 hours saw nine ships clear the Strait with traffic still restricted.”

“Market stress was further evident as Brent contracts for difference exceeded $30, breaching exchange limits and halting trading. Additional supply shocks emerged from Saudi Arabia, where output capacity fell by 600,000 b/d and pipeline disruptions cut a further 700,000 b/d, intensifying fears of sustained shortages, particularly across Asia.”

“Acute energy shortages are driving physical delivery shock pricing for Brent North Sea oil, even as WTI futures prices fall 10% on the week.”