By Robert Harvey and Georgina McCartney
LONDON/HOUSTON, March 19 (Reuters) – If you want to buy a cargo of oil in Asia or jet fuel in Europe right now, you may have to pay a record price for it.
Surging oil prices in physical markets – the trading place for oil on ships, rail cars or in storage tanks – have outpaced the already dizzying increases in benchmark futures markets, as refiners and traders across Asia and Europe are snapping up whatever barrels they can secure to plug the enormous supply gap caused by the U.S.-Israeli war on Iran.
That supply gap is expected to persist following a barrage of attacks on oil-and-gas facilities across the Middle East that has turned into the largest-ever disruption to global energy supplies. Iran has also throttled traffic through the Strait of Hormuz, the critical waterway transited by 20% of the world’s oil and gas, with threats to fire on ships that attempt to sail through the narrow strait.
“It is going to take longer than people realize to bring supply back to the market even once the strait is re-opened, because we would still have a logistics nightmare,” said Dennis Kissler, senior vice president of trading at BOK Financial.
Oil, gas, and refined products are critical to transportation, shipping and manufacturing industries, and energy supply and price shocks can hit consumers, businesses and economies hard, impairing demand for months or years.
Flows of crude and condensate have dropped by about 12 million barrels per day, or around 12% of daily world demand, due to output cuts and export halts by Gulf producers, according to oil shipments tracker Petro-Logistics. Those barrels cannot easily be replaced.
THE PHYSICAL MARKET SURGES
Futures prices have risen steadily since the U.S. and Israel struck Iran beginning February 28, but the moves in physical cargo prices have been far more dramatic.
Benchmark Brent crude hit a session high of $119 on Thursday, later settling around $109 a barrel. However, the benchmark Middle East Dubai crude price hit a record $166.80 a barrel. If outages persist, Brent is likely to surpass its all-time high of $147.50 reached in 2008, investment bank Goldman Sachs said on Thursday.
Cargoes of European and African crude have risen to $120 per barrel, and even barrels from Russia, which were highly discounted due to sanctions, have bounced back above $100.
The Mediterranean market was calm until the start of this week, but even those prices have risen due to fading hopes of a swift reopening of Hormuz, one crude trader said.
