Dated Brent, the price of cargoes for prompt loading, was assessed near $126 a barrel on Thursday while futures settled near $106, a premium of about 19%. On Friday futures fell in the morning and then rallied to about $109 with no single trigger, which leaves open whether the paper market is catching up with the physical one.
There are two prices for North Sea crude right now, and they are far apart.
Platts assessed Dated Brent, the benchmark for physical cargoes loading in the coming weeks, at $125.975 a barrel on Thursday. Brent futures ended the same day at $105.92. A buyer who needed a cargo immediately paid about $20 a barrel, or roughly 19%, more than a trader buying oil for later delivery, by this publication's arithmetic.
That gap is the backdrop for Friday's trading, when the futures price moved around 4% in a few hours.
The swing
In the European morning, Brent futures were at $105.14, down 0.74%, and U.S. crude was at $96.98. By 1:15 p.m. Eastern, Brent had risen 3.3% to $109.37, after reaching $109.72, the highest in four weeks, and West Texas Intermediate stood at $100.78, up 2.9%. Energy shares followed; the Energy Select Sector SPDR fund gained about 2.3% and touched a 52-week high.
No announcement in the intervening hours explains the reversal. Three slower forces were in play. Attacks on shipping near the Strait of Hormuz continued through the week; the U.S. military said on Thursday that the Singapore-flagged container ship GFS Pride "was hit by an IRGC projectile" and "sank while being towed to shore," even as "more than 40 ships" moved through the area in the preceding 24 hours. The November U.S. crude contract expires next week, which can add to volatility as traders roll positions. And a weaker dollar makes dollar-priced oil cheaper for foreign buyers.
What weighed in the morning
Oil drifted lower early Friday as traders weighed two supply signals: the International Energy Agency's plan to speed up its stockpile release, and reports that Washington may ease sanctions on some shadow-fleet tankers. The agency's members agreed on Thursday "to take all necessary steps to complete the remaining releases of around 100 million barrels" from their March pledge, and to accelerate them, with plans in place for "over 20 million barrels of diesel as soon as possible." The diesel is part of the roughly 100 million barrels still to come, about a fifth of it, rather than an addition. An analyst at Sparta Commodities described the diesel releases as "an acceleration of existing commitments rather than genuinely new volumes."
The pace explains the urgency. About 330 million barrels have been released since March, but only about 8 million moved in September, according to the IEA. At September's rate, the remaining 100 million barrels would take about a year to deliver, by this publication's arithmetic. Because some members released more than they pledged, the total will exceed the original 400 million barrels, but most of what is left is a faster schedule for barrels already promised.
Diesel itself has eased from its peak. Ultra-low-sulfur diesel cargoes in northwest Europe were assessed at $1,471.75 a ton on Thursday, about 10% below the Sept. 15 high of $1,642.25.
What the gap can tell investors
The Dated-to-futures premium is the cleanest test of what Friday meant. If the futures rally reflects physical scarcity reaching the paper market, the premium should narrow as futures rise toward cargo prices. If the rally reflects funds positioning before a contract roll, the premium will persist and futures will be vulnerable once the roll passes.
Market implications
One reading is that futures have been too complacent. A 19% premium for prompt barrels, a stockpile release that mostly speeds up barrels already pledged, and continued losses of ships near Hormuz all point to a physical market tighter than the screen price implies.
A second reading is that the physical premium reflects a short window of disruption that futures are right to look past. Diesel prices are off their highs, ships are still moving through the Strait, and the IEA's remaining barrels will arrive over the coming months.
What to watch
Friday's settlement, the next Dated Brent assessments relative to futures, and the November WTI expiry next week. A premium that shrinks while futures hold above $107 would favor the scarcity reading; a premium that stays near $20 while futures fall back after the roll would favor positioning.