Oil producers, traders and refiners are increasingly preparing for a scenario in which the conflict between the United States and Iran in the Persian Gulf drags on. According to OilPrice.com, hopes for a quick political settlement have faded, and the market is now bracing for higher prices to last longer than previously expected.
That mood was also evident at the Asia Pacific Petroleum Conference, the report said. Reuters columnist Clyde Russell noted that there was little optimism at the gathering as tensions in the Middle East escalated again and a rapid peace deal appeared difficult to achieve.
By the article’s account, Brent has moved back above $100 per barrel, but the futures benchmark does not fully capture the strain in the physical market. Actual cargoes often cost significantly more as premiums for alternative crude grades, freight rates and insurance expenses continue to climb.
Bloomberg reported that Russia’s ESPO blend is trading at a premium of about $20 per barrel to Brent as Chinese independent refiners run short of alternatives. The article says the U.S. naval blockade of Iranian ports and the scramble for Venezuelan crude have cut off two major supply channels.
Shipping markets are under separate pressure. Data compiled by Bloomberg show that the benchmark daily rate for a very large crude carrier moving oil from the Middle East to China has climbed to nearly $800,000, a record high. Reuters’ Clyde Russell also reported that the freight cost for a tanker from the Persian Gulf to North Asia has jumped to $30 per barrel, up from $6 before the war.
Insurance costs have surged as well. According to the article, they now stand at $2.50 per barrel, compared with $0.05 previously. That means Persian Gulf producers often need to offer discounts to move crude, even as shipping remains exposed to serious risks, including missile strikes.
The fuels market is even more strained than crude, the publication argues. Speaking at the Asia Pacific Petroleum Conference, Vitol chief executive Russell Hardy said: “We're still not running enough refining capacity to prevent those draws, and we keep eating into the surplus that exists around the world.” In his view, refineries are running harder than usual to offset lost supply from the Middle East and Russia, but global capacity is still insufficient to fully replace those volumes.
The report notes that when the first strikes on Iran began, part of the market assumed the war would last no more than a week, or perhaps a month. Those expectations have since shifted as it became clear Iran would not be subdued quickly and as Tehran followed through on its threat to close the Strait of Hormuz.
Against that backdrop, the oil market is paying closer attention not just to futures prices but to the real cost of physical deliveries. The article’s bottom line is that unless a political settlement comes into view, Brent and WTI could remain above $100 per barrel for an extended period, while logistics and refining constraints continue to tighten the global fuels market.
