The abundance of major crude grades has been cited as a key factor in mitigating the impact of Middle East conflicts on benchmark oil futures prices, as noted by analysts and traders. Despite Brent crude futures briefly surpassing $92 a barrel last week, marking the highest level since October, the influence on prices has been tempered by ample physical supplies.
Although this development presents challenges for governments contending with inflation and elevated fuel expenses, the situation could have been more severe if physical supplies were constrained. Thus far, the conflict has not significantly disrupted oil supplies from the Middle East, which stands as the world’s primary producing region.
Tamas Varga of oil broker PVM remarked, “In the absence of actual supply/production issues, this market will struggle to convincingly challenge the annual peaks reached at the end of last week.” Meanwhile, some of the most crucial crude grades are exhibiting signs of price softening.
In the North Sea physical market, Forties BFO-FOT crude’s premium to the dated Brent benchmark has eased to 35 cents from a 2024 high of $2.30 in February, according to LSEG data. Additionally, Nigeria, Africa’s leading crude exporter, has encountered challenges in offloading May-loading cargoes, with sellers reportedly reducing offers amidst relatively slow sales for this stage of the month.
Although Brent experienced a spike on reports of an Israeli attack on Iran, rising over $3.50 to reach $90.75, this surge fell short of the previous week’s peak and subsequently settled at a neutral level. According to analyst Jorge Leon of Rystad Energy, fair value for Brent stands at approximately $83 based on market fundamentals, highlighting the current premium linked to geopolitical concerns.
Rystad Energy maintains the perspective that, barring a significant escalation in the Middle East, the geopolitical risk premium will stabilize and gradually diminish, despite the latest strike.