The failure of a ceasefire agreement to reopen a critical shipping route has plunged the physical oil market into a supply crisis. On Thursday, as European and Asian refiners scrambled to secure North Sea spot crude, the benchmark Forties Blend price surged to nearly $147 per barrel. According to LSEG data, this price has surpassed the previous record high seen just before the 2008 financial crisis. Simultaneously, the price gap between North Sea spot prices and the Brent June futures contract, quoted at $97 per barrel, widened to over $30. This unusual divergence directly reflects the market's deep-seated panic over physical shortages. A report from Goldman Sachs to clients indicated that oil exports via the Strait of Hormuz have continued to decline recently, now standing at only 8% of normal levels. Following the announcement of the ceasefire, very few vessels have transited the strait, most of which are linked to Iran.
**Unprecedented Market Liquidity Breakdown** The frenzy to secure physical barrels has spilled over into derivatives markets, creating structural anomalies. Traders revealed that as the spread for Brent Contracts for Difference, instruments tracking the price difference between prompt and forward delivery, broke through $30 per barrel, exceeding the Intercontinental Exchange's threshold, next week's Brent CFD contracts can no longer trade normally. ICE, a primary exchange for European oil trading, did not respond to requests for comment. Brent CFDs are widely used by the market to hedge against oil price increases. Multiple market participants stated they could not recall a time when trading Brent CFDs was impossible, forcing some transactions to move to over-the-counter markets. Helima Croft, Global Head of Commodity Strategy at RBC Capital Markets, described futures market prices as a "lagging indicator of the reality in the Middle East waterway physical market."
**Physical Market: Shortage is the Current Reality** The core of this crisis is not just rising prices, but a rupture in physical supply. Amos Hochstein, Energy Advisor to former US President Biden, warned, "If this situation continues for a few more days, the market might conclude the Strait of Hormuz is closed indefinitely, which would not only drive prices higher but could also trigger a crisis in Asia." He further pointed out, "This isn't just about high oil prices; it's about a real, physical shortage happening right now." Asia is particularly vulnerable—approximately 80% of its required oil and petroleum products must be shipped through the Strait of Hormuz. Dennis Kissler, Senior Vice President of Trading at BOK Financial, stated that the supply tightness in the physical market "will last until ships start moving back through the Strait of Hormuz." He added, "Even if the strait opens, it will take 20 days to untangle the logistics issues, and the physical market will remain tight until then."
**Saudi Capacity Damaged, Alternative Bypass Route Also Disrupted** Supply pressures are not solely from the strait blockade. Saudi Arabia disclosed on Thursday that recent attacks on its energy infrastructure have reduced production capacity by approximately 600,000 barrels per day. Affected fields include Khurais and Manifa, representing about 5% of Saudi Arabia's normal capacity of 12 million barrels per day. More critically, the East-West Pipeline, a dedicated alternative route designed to bypass the Strait of Hormuz, was attacked this week, resulting in a throughput loss of about 700,000 barrels per day. This means the "backup export route" the market had hoped for is also blocked.
**Ceasefire in Limbo, Negotiations Yet to Begin** Despite a two-week US-Iran ceasefire announced on Tuesday, the situation remains far from stable. Within hours of the ceasefire agreement, Iran again halted tanker transit. Iranian Foreign Minister Abbas Araghchi, in a call with Saudi Foreign Minister Prince Faisal bin Farhan on Thursday, stated that Iran has not yet begun direct negotiations with the United States. Former President Trump said that day, "Soon, you will see oil start to flow," but simultaneously criticized Iran for doing "a very bad job" at allowing oil shipments to transit and warned Tehran "better not" charge tolls for safe passage. Trump is dispatching a delegation to Islamabad, including Vice President JD Vance, envoy Steve Witkoff, and his son-in-law Jared Kushner, with talks planned for this weekend.
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