Brent Hits a Five-Month High, but Middle East Crude Is Getting Cheaper

Brent crude has climbed to its highest level since May and is on track for a third straight weekly gain. But beneath the futures rally, a very different picture is emerging in the physical oil market.

Some Middle Eastern crude sold outside the Persian Gulf is getting cheaper.

Asian refiners have seen more spot cargoes offered in recent days, with sellers becoming more competitive on price. One cargo of Iraq’s Basra Medium, transferred ship-to-ship in the Gulf of Oman, was sold at a discount of nearly $10 a barrel to the Dubai benchmark. Just a month ago, Basra crude was trading close to parity.

Oil Is Still Getting Through

The shift suggests traders and producers have become better at moving crude despite the threat of attacks around the Strait of Hormuz.

For now, physical supply has remained relatively stable. More cargoes are reaching the market, which helps explain why some spot prices are falling even as Brent futures continue to climb.

So Why Is Brent Still Rising?

Because futures are trading what could happen next.

The market is still putting a premium on the risk of another attack disrupting flows through the region. As long as that threat remains, traders may be willing to pay more for future barrels even when crude is available today.

That leaves an unusual gap between the two markets: physical crude is showing fewer signs of immediate shortage, while futures are still pricing in the possibility that the situation could deteriorate.

If shipments continue without major disruption, that risk premium could come under pressure. Another serious attack, however, could quickly bring physical supply back into focus.