Physical crude for immediate delivery is changing hands at record levels, far above futures contracts, as refiners scramble to replace lost Middle Eastern supply amid the U.S.-Israel war with Iran and Iran's effective closure of the Strait of Hormuz.
Refiners in Europe and Asia are paying as much as about $150 a barrel for certain crude grades, a surge that underscores how severe the current supply disruption has become. The conflict has forced the shutdown of at least 12 million barrels per day - about 12% of world supply - originating from the Middle East, according to the available information.
Brent futures, which trade as paper contracts, climbed to $119.50 a barrel last month, marking the highest futures level since 2022 but still below the 2008 peak of $147.50. The nearby Brent contract referenced for these futures is for June delivery.
Where the market is most visibly strained is in prompt, physical cargoes. Competition between Asian and European refiners to secure replacement crude flows from Europe and Africa for immediate use has driven spot prices higher, with some individual crudes already eclipsing previous records.
Data from LSEG showed the outright price of North Sea Forties reached $146.09 a barrel on Tuesday, exceeding the 2008 level and representing an all-time high for that grade. Traders and analysts point to the acute nature of the physical shortage as the central force behind the surge.
Veteran oil trader Adi Imsirovic characterized the market driver succinctly: "When there is a real, physical shortage, people are not thinking about July delivery - June loading and hence June futures prices - but oil NOW." Imsirovic said panic over supplies is the main factor lifting prices such as that of Forties.
The physical benchmark known as dated Brent, which reflects the value of cargoes available for immediate delivery, is trading at a substantial premium to Brent futures for June. LSEG data indicate dated Brent is almost $20 above the June Brent futures price, illustrating the market's willingness to pay up for prompt, refinery-ready barrels.
Analysts at Morgan Stanley highlighted the market mechanics in a report: "At the moment, the market is scrambling for prompt, refinery-usable barrels, and stress is appearing first in the part of the benchmark that is closest to the immediate physical problem."
The pressure on crude markets is also filtering into refined products. In Europe, jet fuel hovered at $226.40 a barrel on Tuesday, close to a record high reached in mid-March. Diesel remained below its 2022 peak but stood at $203.59 a barrel on Tuesday, levels that will influence refinery margins, transport fuel costs and industrial energy bills.
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Implications for markets and consumers
The immediate premium on physical barrels signals acute stress for refineries reliant on prompt supplies, while elevated refined fuel prices in Europe suggest downstream cost pressure for aviation, road freight and industrial users.