Hormuz Risks Widen Price Gap Between Crude Grades
Oil prices have surged to over $100 per barrel in recent months due to ongoing tensions in the Persian Gulf. The price gap between oil grades has widened significantly, with some crude blends trading at a discount of over $40 compared to others. This disparity is largely driven by the risks associated with transporting oil through the Strait of Hormuz.
According to Reuters' Clyde Russell, Iraqi crude is being offered at a discount of $43.06 per barrel to the regional Murban benchmark. Murban crude, which loads at the port of Fujairah outside the chokepoint, is trading at over $127 per barrel. In contrast, tanker movements through Hormuz have been severely subdued since the latest attacks.
However, once oil clears the Strait of Hormuz, prices jump significantly. The discount on Iraqi crude shrinks as demand for physical oil takes precedence over safety concerns and insurance costs. This resilience in crude demand is a key factor driving the price gap between different oil grades.
In addition to the Hormuz-related price disparity, other factors are also influencing global oil markets. Russian crude, for example, is commanding a premium over Brent despite sanctions, while Australian blends like Pyrenees are trading at record highs. The ESPO blend from Russia's Far East has traded at up to $10 per barrel above Brent as Chinese independent refiners rush to replace Iranian barrels paralyzed by the U.S. naval blockade.