The Global Energy Shortage Will Last for a Long Time
There are historically large gaps between the price of oil “here and now” and the price of oil just a few months in the future.
Unrest and threats in one of the world’s most important oil transport arteries contribute to strong market fluctuations.
“We are going to bomb Iran back to the Stone Age,” wrote US President Donald Trump on Truth Social on Thursday.
Oil investors are following Trump’s signals closely, and the oil price quickly skyrocketed.
A barrel of North Sea oil became $10 more expensive during this one day of high season. When trading closed on Thursday, the barrel cost just over $109 a barrel.
After a weekend of even more slander from Trump and further attacks in the region—also against refineries and petrochemical plants—trading reopened today.
Despite reports of possible talks about a ceasefire, the spot price of Brent crude oil is still just under $109 a barrel on Monday afternoon.
But something extreme is happening in the oil market these days.
Extreme Price Gap
There is a historically large gap between the prices of now oil and future oil, with settlement towards the end of June.
The gap is now around $20 a barrel, while it is usually plus/minus $2 a barrel.
“It is completely extreme. This is among the absolute largest differences we have ever seen. There is no doubt about that,” says oil analyst Ole-Rikard Hammer at Arctic Securities.
Dated Brent: we can call it the now price. It is the price of physical North Sea oil ready for loading in the North Sea, with a delivery date within two weeks. This largely reflects the consequences of the closure of the Strait of Hormuz.
Brent Spot: we can call it the future price. It is the price of North Sea oil with future delivery and is settled two to three months in the future. It has an element of expectation in it, and is therefore particularly sensitive to Trump’s antics.
For example: on Maundy Thursday, Dated Brent was just over $127 a barrel, while Brent Spot was at $109 a barrel.
“The physical market is under tremendous pressure now, because the world is running a deficit of 10–15 million barrels per day. So around 15 percent of the supply of oil is gone,” says Hammer.
No Improvement in Sight
— But how is it that oil investors believe that the situation will improve so much already in June, and thus believe that the price will drop by around $20 per barrel?
“The market has an expectation that the current situation is so extreme that it cannot continue. We live in faith and hope that the pain, either for the US economically, or Iran purely in terms of humanity and war, will be so great that a solution will be forced to emerge within a relatively short time,” says Hammer.
But before things can get better, they will first have to get worse in terms of oil prices, Hammer explains.
He Is Supported by Commodity Analyst Ole R. Hvalbye at SEB. It Is in April That Things Can Really Start to Hurt.
“It is often in the second and third months that things get really bad. It will hurt a lot before it gets better,” says Hvalbye.
This is a brief summary of the reason:
Fewer ships: It takes about three weeks for an oil tanker to go from the Middle East to Asia. Ergo, there was a normal amount of ships loaded with oil on their way to the market when the war started. Now, however, the number of ships has fallen dramatically, because they cannot get through the Strait of Hormuz.
More travel: March is low season in the oil market, but in April and the months ahead there will be an upswing. Demand will increase because people will travel more both by plane and by car.
Increased demand: Several countries will probably secure themselves for the future, and try to build strategic stocks of oil—perhaps larger stocks than they had before the war started. Therefore, demand will probably be higher over time, which will push prices up.
Source: NRK (in Norwegian)