Physical oil prices for some Middle Eastern crudes sold outside the Persian Gulf have declined as producers and traders adapt to shipping challenges through the Strait of Hormuz. The number of spot grade offers has increased, with shipments being marketed at more competitive prices, according to Asian refiners who received these offers.
For example, a cargo of Iraqi Basrah Medium crude was sold at a discount of nearly $10 a barrel to the physical Dubai benchmark on a ship-to-ship transfer basis in the Gulf of Oman. A month ago, Iraqi Basrah was offered at near parity to Dubai. These price drops contrast with the trends in benchmark oil futures, which are on track for a third weekly gain, hitting the highest since May.
Warren Patterson, head of commodities strategy at ING Groep NV, noted that while Middle East flows are holding up, the market remains concerned about the sustainability of these flows amid renewed attacks. He added that the rise in oil futures is driven by supply risks rather than fundamental factors. Brent futures were last nearing $115 a barrel, up from about $103 a month ago.
Traders attribute the slumping prices for physical barrels of Iraqi crude and other grades to increasingly competitive offers, which come with assurances of an ability to get oil out of the gulf. There has also been greater interest in other crudes, such as Khafji from the Saudi-Kuwaiti neutral zone and Al-Shaheen crude from Qatar, which have been offered for deliveries as late as next January. Other physical grades, including Omani crude, have also seen price drops.