Three weeks into the Iran war, there’s an ever-growing gap between the price of oil futures and supplies that determine costs for consumers in the real world.
The global Brent benchmark has jumped more than 50% to around $112 a barrel as the near-complete closure of the Strait of Hormuz and attacks on Middle East energy facilities choke supplies. But the cost of almost every physical barrel is surging even more, as tight supplies boost prices of products that consumers actually use, like gasoline, diesel and jet fuel.
Refiners in Asia, the top consuming region, are buying cargoes from thousands of miles away at eye-watering premiums to Brent as they try to secure whatever supplies are available. Trucking companies are starting to feel the impact of higher fuel costs, and some parts of the world are crimping purchases of fuels that power ships. With jet fuel prices above $200 a barrel, major European airlines say passengers will have to bear the extra costs.
The disconnect between futures — which are underpinned by hundreds of billions of dollars of daily transactions — and physical oil is partly due to aggressive U.S. attempts to keep a lid on prices, including through releasing emergency supplies. The reality is that the global economy is suffering from a bigger inflationary hit than futures suggest, putting pressure on central bankers and the Trump administration before the November midterm elections.
“You look at the paper markets, they’ve entirely disconnected from the physical markets,” said Jeff Currie, chief strategy officer of energy pathways at Carlyle Group Inc. “We’re dealing with an enormous supply shock.”
The price shock could get much worse. Wall Street giants Goldman Sachs Group Inc. and Citigroup Inc. last week said that if the war continues, futures could hit record highs in the coming weeks, surpassing $147.50 set in 2008. It’s unusual for physical and futures prices to remain far apart for long periods.
Those calls are being driven by what the International Energy Agency described as the biggest-ever oil supply disruption. Goldman has estimated that about 17 million barrels of oil flows daily through the Persian Gulf.
Brent neared $120 twice in the last two weeks, a level not seen since 2022 — after Russia invaded Ukraine — putting pressure on Washington to calm the market.
On Thursday, Treasury Secretary Scott Bessent told Fox Business that just days after announcing one massive stockpile release, the U.S. could consider another one, despite question marks over the viability of doing so logistically.
He then followed with comments that stunned already exhausted oil traders: The U.S. might lift some sanctions on Iranian oil, despite being at war with Tehran — a move since enacted. Traders around the world, who have had to approach Iran trades with the utmost caution for years, expressed exasperation with the news.
Other efforts to tame prices include the unsanctioning of Russian oil at sea, and there has been intense trader speculation that the U.S. may be intervening in futures markets, something Bessent has denied. Soaring volatility has also limited the size of positions that traders can take, as it makes it more expensive to do so. While that has helped keep a ceiling on futures, it’s limited compared with the impact of the disruption in Hormuz.
“The U.S. has almost exhausted the arsenal for stopping prices from rising, given this degree of uncertainty, if the strait isn’t opened and the uncertainty of physical damage isn’t removed,” Christof Ruhl, global advisor at Crystol Energy and a former BP economist, said in a Bloomberg TV interview. “So there isn’t much they can do.”
The signs of stress are growing, too.
Container shipping lines are adding fuel surcharges, and huge price swings in shipping fuel markets are causing some marine fuel buyers to hold off on large orders because of the price fluctuations.
In the U.S., retail gasoline prices are fast approaching $4 a gallon, and diesel prices have exceeded $5. The average price of gas in California hit $5.66 on Friday, with some stations charging more than $8 or even $9.
In Germany, a heating oil seller said people are buying only “when absolutely necessary” because of high prices, while airlines have canceled some flights as jet fuel soars.
“Movements in energy markets feed through to our cost base almost immediately,” said Pavel Kveten, chief executive at Girteka Logistics, one of Europe’s top trucking companies. Fuel makes up about 30% of the firm’s transport costs, he said.
Highlighting the scramble for real-world barrels of crude, the Oman benchmark in the Middle East rose above $162 a barrel last week. Murban crude from the United Arab Emirates topped $145. As those prices soar, Asian buyers have scooped up the most American oil in three years, hunting for replacements for Middle Eastern flows that increasingly look as though they’ll be curtailed for longer.
For now, the war shows no signs of easing as it enters its fourth week. Iranian officials have become reluctant to even discuss reopening Hormuz as they focus on surviving the U.S.-Israeli onslaught, a person involved in direct high-level contacts with Tehran said Friday.
“We see little relief for the deepening energy crisis as more energy facilities come under fire,” RBC Capital Markets analyst Helima Croft said in a note. “Administration officials have spent considerable man-hours working to convey to market participants that the disruption will be short-lived as the war will soon wind down. Yet nothing points to a limited engagement at this juncture.”
Longley, Smith and Neo write for Bloomberg. Bloomberg writers Yongchang Chin, Serene Cheong, Rachel Graham, Ari Natter and Charles Gorrivan contributed to this report.