Crude oil continues to trade around the $110 per barrel mark. However, there is another factor that’s added to the volatility. The West Asia crisis has created a procurement rush for non-Middle Eastern oil, according to media reports. US crude futures have surged past the global benchmark, Brent futures.
US crude futures, West Texas Intermediate (WTI) for June soared past the $115/bbl mark for the first time since June 2022 and were trading above the global benchmark Brent crude which was quoted near the $111/bbl level. The surge came in as tensions in Middle East prompted buyers to rush towards the US crude.
This marks a significant development as WTI crude rarely trades at a premium in comparison to Brent crude, which is the global seaborne benchmark.
Crude oil likely to see sharp volatility
High volatility is expected for oil prices yet again over recent developments in the prolonged West Asia crisis. Iran has rejected the US ceasefire plan and, in response, delivered its 10-point plan, part of which also includes a fee on ships transiting through the crucial waterway passage—the Strait of Hormuz.
In early Asian trade, Brent crude futures were quoted near the $111/bbl mark, while US crude, West Texas Intermediate, was trading around the $115/bbl level. US President Donald Trump on Monday gave Iran the deadline of Tuesday, 8 pm ET (5:30 AM, April 8 (IST)), to reopen the trade route or face major infrastructure strikes.
Strait of Hormuz crisis keeps oil prices elevated
As a part of its 10-point deal, Tehran has stated that the Strait of Hormuz would only be reopened if it was guaranteed that Tehran will not be attacked again, and the war will be put to a permanent end, not just a ceasefire.
Iran’s plan includes a fee of $2 million per ship transiting through the Hormuz route, which carries over 20% of the world’s global energy supplies. Tehran added that the fee would be split with Oman, stating that the pay would be used for reconstruction instead of reparations.
“Any credible signs of de-escalation could trigger sharp pullbacks, whereas a breakdown in talks or further escalation may push Brent back toward $120, particularly as tight physical markets continue to support deep backwardation,” said Kaynat Chainwala, AVP Commodity Research at Kotak Securities.
Premium for US Crude jumps to all-time high
As oil supply remains disrupted, the spot premium (the extra amount buyers pay above the standard benchmark price) shot up to all-time highs over intensified competition between European and Asian refiners, Reuters said in a report citing sources.
In the spot market, premiums for WTI were between $30 and $40 per barrel, media filings reported. The report added that the jump in crude is driving up costs and fuelling losses for refiners on both continents, putting pressure on state-owned firms.
“Asian refiners, shut out of Middle Eastern supply, are bidding aggressively for every available Atlantic Basin barrel,” Reuters quoted Paola Rodriguez-Masiu, chief oil analyst at Rystad Energy, in a note dated April 3.
Markets still remain skeptical about Trump’s deadline, as the US President has previously vacillated on his stance multiple times.