European and African crude oil prices reach records due to supply disruptions despite ceasefire
European and African crude prices climbed on Wednesday to new'records,' defying a sharp drop in oil futures following the U.S./Iran ceasefire negotiated on Tuesday. Traders 'priced in' a disruption in physical oil supplies for a long time.
Investors bet that the Strait of Hormuz would reopen and there would be a reduction in geopolitical risks. The announcement of a ceasefire sent Brent and WTI benchmark contracts down 13% and 16 % respectively to below $100 per barrel on Wednesday.
Prices on the physical market are still rising and have not yet declined. According to LSEG, the outright price for a barrel North Sea 'Forties crude oil FOT-E hit a record high of $146.43 a barrel on Thursday.
Divergence in prices highlights the fierce competition between Asian and European refiners to obtain barrels from outside of the Middle East, which is driving up prices on immediate replacement crudes such as those produced in Europe?and Africa. This also indicates that the disruption will continue.
Sparta Commodities' analyst Neil Crosby said: "We have months to go before we return to a full supply chain. So there will continue to be a big divergence in the paper and physical markets."
PHYSICAL PREMIUMS HIT RECORDS
The continued?near closure of the Strait of Hormuz by Iran and its attacks on the energy infrastructure of regional states have also driven the prices at which crude oil is traded to record highs.
Forties is traded at a discount or premium to dated Brent BFO, which is a physical benchmark used for immediate cargoes. According to LSEG, dated Brent is currently trading at a premium of almost $27 over June Brent futures. Forties also hit a record high premium of $20.25 on Wednesday.
Energy Aspects, a consultancy, said: "The reaction [on futures price] is expected but we don't expect it to translate quickly into a change in production or physical flows."
The statement added that operators would not restart refineries or fields because of the risk?of a renewed shutdown.
On Wednesday, the premiums for other grades of Brent, Oseberg and Troll in the?North Sea also reached new records. U.S. WTI Midland delivered to 'Europe traded on Wednesday at a premium of $20.70 to Brent dated. This was also the highest price ever.
The price of WTI Midland and the five North Sea Crude Oils are used to calculate the?value for dated Brent. These premiums are of greater?importance to the oil market, as dated Brent is used for pricing over 60% of global traded crude.
A trader in West Africa said that Angolan Cabinda crude traded at Brent plus $10 or more per barrel on Wednesday. This was a record for this grade. (Reporting and editing by Alex Lawler, Bernadettebaum and Seher Dareen from London)
(source: Reuters)
