NEW YORK: Benchmark oil prices are soaring as war in the Middle East roils trading flows, but the rally is uneven across the globe, sparking some of the largest gaps between US crude and the rest of the world in years.
West Texas Intermediate (WTI) was trading at a discount of close to US$12 a barrel to the global Brent benchmark on Wednesday, the most since early 2015.
US futures were around US$96 a barrel that day, while some grades in the Middle East, like Oman crude, have topped US$150 as the hostilities have escalated.
That’s partly a reflection of diverging supply outlooks between regions as conflict rages on.
Oil and gas infrastructure sites in Iran and other nations around the Persian Gulf were targeted overnight.
Supplies of light-sweet crude in the West haven’t been hit as hard, at least for now.
For heavier barrels, the United States can source them from Venezuela and elsewhere in Latin America.
Releases from emergency oil reserves in the United States are also almost entirely made up of sour crude supplies – similar in quality to typical Middle Eastern barrels –bolstering availability for Gulf Coast processors and further cushioning the impact on US benchmark futures.
Traders said that current plans to release emergency stockpiles would add supply mainly to Western markets, meaning it will take time to reach where the shortage is most acute: Asia.
Asian buyers are heavily reliant on Middle Eastern barrels – Japan gets about 90% of its crude from Persian Gulf nations – which have been severely disrupted by the de facto halt to shipping through the Strait of Hormuz.
The region’s processors have been scouring the globe for supplies and paying big premiums to secure them.
“At face value, this could be interpreted as market complacency,” JPMorgan Chase & Co analysts including Natasha Kaneva said in a note.
“A closer examination, however, suggests a misalignment between benchmark pricing and the geography of the disruption.”
The outsized impact on Asia has forced traders to zero in on activity far away from the world’s major derivative-trading centers of London and New York.
Headlines that flash during Asian hours are drawing activity during times of the day that are usually the most quiet.
The imbalance has contributed to significant losses for Chinese and Japanese refiners, which typically take short positions on derivatives priced off Asian benchmarks.
The weakness in WTI relative to other global benchmarks comes as traders hotly speculate whether the United States will intervene in oil futures markets, or could take other steps to address fallout from the crisis.
Trading energy futures has been one measure considered by the Unitd States, sources said earlier this month; however, Treasury secretary Scott Bessent told CNBC this week that no such action has been taken.
On other fronts, the Trump administration may decide to consider a crude-oil export levy, or possibly a ban, to combat surging energy prices caused by the war in the Middle East, according to RBC Capital Markets LLC.
“Our boots in DC suggest the admin favours a crude-export tariff over an outright ban, though a full ban remains a tail risk,” analyst Julian Triscott said in a note.
The WTI-Brent spread “is widening meaningfully as Trump intervention fears mount,” he said. In the United States, the 172 million-barrel release of oil stockpiles is already reshaping the futures curve.
Traders are selling the nearest portion of the curve and buying later months as they seek to hedge the release, which is structured as an exchange whereby barrels are sold near and given back with interest at a later date.
This relative weakness in WTI is in part a reflection of that hedging, said Scott Shelton, an energy specialist at TP ICAP Group Plc. “Due to the liquidity and lack of shorts left, prices can drop very easily. Correlation is breaking down, so strong global crude is doing little to stop it.”
There is also growing expectation that the United States can stave off the worst of a supply shock by tapping alternative crude supplies, including renewed flows from Venezuela following Washington’s intervention earlier this year.
Imports of the South American nation’s crude have doubled to about 423,000 barrels a day, the highest level since November 2024.
The influx has helped lift overall US imports, with Gulf Coast inflows rising by more than one million barrels a day to a six-year high, according to Energy Information Administration.
As a result, US crude stockpiles have soared to their highest level since June 2024, the agency’s data show, reinforcing perceptions of ample supply despite ongoing disruptions in the Middle East.
The sell-off is rippling all the way along the curve, consultant Energy Aspects wrote in a note to clients this week. That’s likely forced traders with bullish bets as far out as December 2028 to close out positions, the firm said.
“Dubai trading around US$150 reflects the physical reality of tightness in the region, while WTI is trading more in line with expectations around possible government intervention, whether that’s an SPR release, an export restriction, or tax changes designed to keep more barrels at home,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. — Bloomberg
