European and African crude oil prices surged to record highs on Thursday, defying sharp falls in futures markets after a temporary ceasefire was announced between the United States and Iran.
Traders said the spike in physical oil prices reflected expectations of prolonged supply disruptions, even as major benchmark futures contracts tumbled following the ceasefire announcement on Tuesday.
The announcement sent Brent and WTI futures down by 13 percent and 16 percent respectively, dipping below $100 a barrel as investors bet on the reopening of the Strait of Hormuz and a reduction in the geopolitical risk premium.
However, the physical oil market has yet to reflect those declines, with some grades even climbing to record levels. North Sea Forties crude reached an all-time high of US$146.43 per barrel, according to London Stock Exchange Group data. Analysts said this divergence highlights strong competition from Asian and European refiners for non-Middle East barrels, keeping prompt replacement crude prices elevated.
“We are talking months before a return to the full supply chain, so certainly there will continue to be this big divergence between the physical and paper markets,” said Neil Crosby, analyst at Sparta Commodities.
Record Physical Premiums
The near-closure of the Strait of Hormuz and attacks on regional energy infrastructure have pushed physical cargo premiums to unprecedented levels. Forties crude traded at a record US$20.25 premium to dated Brent, a benchmark for prompt cargoes. Dated Brent itself traded nearly US$27 above June Brent futures, reflecting a strong premium for immediate supply.
Consultancy Energy Aspects noted that the temporary two-week ceasefire would not prompt operators to restart refineries or oil fields due to the ongoing risk of renewed shutdowns. “The reaction on futures prices is expected, but we do not expect it will quickly translate into a material change in physical flows or production,” the firm said.
Other North Sea grades, including Brent, Oseberg, Ekofisk, and Troll, were also bid to fresh record premiums, while U.S. WTI Midland crude delivered to Europe traded at a US$20.70 premium to dated Brent, the highest on record. The value of dated Brent is derived from the five North Sea crudes and WTI Midland and is used to price more than 60 percent of globally traded crude.
In West Africa, Angolan Cabinda crude traded around US$10 above dated Brent, also marking a record high for that grade. Analysts said the physical market’s resilience reflects fears that even a temporary pause in hostilities will not immediately restore oil flows.
Traders have cited continuing logistical challenges and heightened competition for alternative barrels as key drivers of the divergence between futures and physical markets. While paper markets reflect speculative sentiment on geopolitical risk, the physical market prices the real cost of immediate supply shortages.
Market participants warn that global oil supply could remain tight for months, even if hostilities in the Middle East do not escalate further. Physical premiums are likely to stay elevated as refiners scramble for prompt cargoes and operators hesitate to resume production amid fragile ceasefire conditions.
The record premiums for North Sea and West African crudes have broader significance for global energy markets. They influence the pricing of a wide range of contracts and commodities linked to crude oil, signaling that supply chain disruptions could have ripple effects on fuel prices and energy inflation worldwide.
With energy markets already under pressure from geopolitical tensions, analysts said the situation underscores the fragility of global crude supply chains and the limits of temporary ceasefire agreements in immediately easing market strains.
