Physical Oil Prices Jump as Iran, Ukraine Conflicts Hit Supply

Physical crude oil prices have jumped to their highest levels in two months, with some grades approaching $110 a barrel. This surge is driven by escalating supply disruptions linked to the ongoing conflicts involving Iran and Ukraine, compelling buyers to scramble for prompt supply from alternative sources. The benchmark dated Brent crude hit $105.70 per barrel on Thursday, its highest since late May. North Sea Forties crude followed, reaching $108.77 on Friday. Tensions in the Middle East have intensified as Yemen's Iran-aligned Houthis attacked tankers in the Red Sea, necessitating rerouting around Africa. This follows the collapse of a preliminary U.S.-Iran peace deal and increased disruptions through the Strait of Hormuz. "Supply considerations are once again at the forefront of thinking," noted Tamas Varga, an oil broker at PVM. Further complicating matters, Kazakhstan reported reduced oil production after suspected Ukrainian drone attacks forced its main export terminal for CPC Blend crude on the Black Sea to close. Kazakh crude production has reportedly halved. Spot premiums for Middle Eastern grades like Dubai and Oman have doubled, reaching their highest since late May. This rebound contrasts with earlier discounts seen during a brief U.S.-Iran truce. The premium for Abu Dhabi's Murban crude also surged, reflecting tight supply for light-sour crude exacerbated by Black Sea ship attacks. Several Asian refiners are actively seeking cargoes and vessels, anticipating significant diversions around Africa compared to the usual route through Bab el-Mandeb.

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Supply considerations are once again at the forefront of thinking