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Photographer: David Paul Morris\/Bloomberg <\/p>\n Photographer: David Paul Morris\/Bloomberg <\/p>\n
(Bloomberg) — Three weeks into the Iran war, there\u2019s an ever-growing gap between the price of oil futures and supplies that determine costs for consumers in the real world.<\/p>\n
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.<\/p>\n
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Refiners in Asia, the top consuming region, are buying cargoes from thousands of miles away at eye-watering premiums to Brent as they try and 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.<\/p>\n
The disconnect between futures \u2014 which are underpinned by hundreds of billions of dollars of daily transactions \u2014 and physical oil is partly due to aggressive US 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, something that\u2019s piling pressure on central bankers and the Trump administration before the November midterm elections.<\/p>\n
\u201cYou look at the paper markets, they\u2019ve entirely disconnected from the physical markets,\u201d said Jeff Currie, chief strategy officer of energy pathways at Carlyle Group Inc. \u201cWe\u2019re dealing with an enormous supply shock.\u201d<\/p>\n
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The price shock could get much worse. Wall Street giants Goldman Sachs Group Inc. and Citigroup Inc. this week said that if the conflict continues, futures could hit record highs in the coming weeks, surpassing $147.50 set in 2008. It\u2019s unusual for physical and futures prices to remain far apart for long periods of time.<\/p>\n
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 a day of oil flows through the Persian Gulf are being affected by the conflict.<\/p>\n
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Brent neared $120 twice in the last two weeks, a level not seen since 2022, putting pressure on Washington to calm the market.<\/p>\n
On Thursday, Treasury Secretary Scott Bessent told Fox Business that just days after announcing one massive stockpile release, the US could consider another one, despite question marks over the viability of doing so logistically.<\/p>\n
He then followed with comments that stunned already-exhausted oil traders: The US might lift some sanctions on Iranian oil, despite being at war with Tehran. Traders around the world, who have had to approach Iran trades with the utmost caution for years, expressed exasperation with the news.<\/p>\n
Other efforts to tame prices include the unsanctioning of Russian oil at sea, and there has been intense trader speculation that the US 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 to keep a ceiling on futures, it\u2019s limited compared with the impact of the disruption in Hormuz.<\/p>\n
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\u201cThe US has almost exhausted the arsenal for stopping prices from rising, given this degree of uncertainty, if the strait isn\u2019t opened and the uncertainty of physical damage isn\u2019t removed,\u201d Christof Ruhl, global advisor at Crystol Energy and a former BP Plc economist, said in a Bloomberg TV interview. \u201cSo there isn\u2019t much they can do.\u201d<\/p>\n
The signs of stress are growing, too.<\/p>\n
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 due to the price fluctuations.<\/p>\n
In the US, retail gasoline prices are fast approaching $4 a gallon and diesel prices have exceeded $5. In Germany, a heating oil seller said people are only buying \u201cwhen absolutely necessary\u201d because of high prices, while airlines have canceled some flights as jet fuel soars.<\/p>\n
\u201cMovements in energy markets feed through to our cost base almost immediately,\u201d said Pavel Kveten, Chief Executive Officer at Girteka Logistics, one of Europe\u2019s top trucking companies. Fuel makes up about 30% of the firm\u2019s transport costs, he said.<\/p>\n
Highlighting the scramble for real-world barrels of crude, the Oman benchmark in the Middle East rose above $162 a barrel this 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 like they\u2019ll be curtailed for longer.<\/p>\n
For now, the war shows no signs of easing as the conflict is about to enter a fourth week. Iranian officials have become reluctant to even discuss reopening Hormuz as they focus on surviving the US-Israeli onslaught, a person involved in direct, high-level contacts with Tehran said on Friday.<\/p>\n
\u201cWe see little relief for the deepening energy crisis as more energy facilities come under fire,\u201d RBC Capital Markets LLC analyst Helima Croft said in a note. \u201cAdministration officials have spent considerable manhours 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.\u201d<\/p>\n
–With assistance from Yongchang Chin, Serene Cheong, Rachel Graham, Ari Natter and Charles Gorrivan.<\/p>\n
Most Read from Bloomberg Businessweek<\/p>\n
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