Heavy crude grades from the U.S. Gulf Coast continued to strengthen on Friday as conflict linked to Iran reduced flows of medium and heavy sour crude from the Persian Gulf and pushed buyers to acquire U.S. barrels.
Traders reported Mars sour crude - a benchmark grade from the U.S. Gulf of Mexico commonly used by refiners worldwide - was trading at an $11 premium to U.S. benchmark West Texas Intermediate (WTI) on Friday. That premium represented the highest level since April 2020 and was $4 higher than the level seen on Thursday. A week earlier, Mars was changing hands at a much smaller premium of $1.50 to WTI.
Other heavy grades from the Gulf Coast, including Heavy Louisiana Sweet and West Texas Sour, also rose in value as buyers sought replacement barrels.
Benchmark crude prices more broadly have rallied since the initial attacks last week, with Brent settling at $92.69 a barrel on Friday - its strongest close since October 2023, according to market prices cited by traders.
Market participants said the effective closure of the Strait of Hormuz has been a central factor tightening supplies. The strait is a primary transit route for medium and heavy sour crude from the Persian Gulf, and with flows through that corridor largely curtailed, several producing countries - including Iraq - have been forced to reduce output.
Additional production cuts announced in Kuwait on Friday further supported higher prices for U.S. Gulf crudes, a trader said.
Market analysts explained the mechanics behind the demand shift. "Refiners that rely on these grades will need to find similar, or roughly similar, alternatives to replace the lost barrels, so Mars and other U.S. Gulf sour heavies and mediums are natural substitutes and are getting bid up aggressively," said Matthew Lewis, founder of Plainview Energy Analytics. He added that buyers, particularly in Asia, are scrambling to secure more medium and heavy crude barrels.
Seasonal demand factors are also relevant. "This time of year also marks the shift from winter into driving season, when demand typically rises across all crude grades," said Tim Snyder, chief economist at Matador Economics. Snyder emphasized that, while seasonal demand contributes, the immediate driver of the price moves is the supply disruption caused by the conflict. "In the short term we will continue to see these grades rise until we see the Strait of Hormuz open up," he said.
Market takeaway - The confluence of reduced Persian Gulf exports, announced production curbs, and seasonal demand shifts has caused a pronounced reallocation of medium and heavy crude flows toward the U.S. Gulf, lifting premiums on sour heavy grades and increasing volatility in global crude benchmarks.