Brent Crude Futures Ignore Reality as Physical Oil Prices Plummet

The Brent crude futures market is not reflecting reality as it continues to rise despite the ongoing crisis in the Strait of Hormuz, while physical oil prices are signaling an imminent disaster. Global benchmark Brent crude futures ended at $91.98 a barrel on Wednesday, up 4.8% from the prior close but still down from the brief spike on March 9 that saw them reach $119.50.

The premium for a physical cargo of Middle East benchmark Dubai crude over its paper equivalent rose to almost $38 a barrel on Wednesday, the highest since Russia's 2022 invasion of Ukraine. Paper oil traders seem to believe the rhetoric from U.S. President Donald Trump and some in his administration that the campaign against Iran is going well and there is no real threat to oil and product shipments through the Strait of Hormuz.

However, the current issues can't be solved by comments from political leaders that appear untethered from reality on the ground, as well as a stockpile release that will probably not put enough oil in Asia, where it is needed. The stress on supply chains in Asia is already becoming apparent and prices for actual cargoes of crude and refined products are reflecting this reality.