Brent Crude Price Plunges $5.47 on Contract Switch
The Brent crude price saw a significant drop of $5.47 on Wednesday evening after the November contract expired at $103.50, but by Thursday morning, it was already back near $100. This unusual fluctuation is due to the market switching from one contract to another, with December taking over as the front month.
Despite the headline number dropping, both contracts actually rose on that day, with November settling 0.9% higher at $103.50 and December 1.9% higher at $98.03. This phenomenon is known as a roll forward, where the market pays up for oil it can have now.
The Brent crude price curve slopes down the whole way out, indicating that traders are pricing the Hormuz disruption as a temporary condition rather than a permanent repricing of crude. In fact, Goldman Sachs estimates Gulf oil exports have recovered to 23.3 million barrels a day, and Saudi Arabia is the swing factor in this recovery.
The price drop on Tuesday was due to President Trump denying reports that he was prepared to ease sanctions on Iran in exchange for nuclear concessions. This removal of the diplomatic discount lifted the Brent crude price on Wednesday and again on Thursday.