The situation in West Asia may seem calm, but there is a distinct uneasiness in the inner corridors of the oil market. The news of the recent ceasefire between America and Iran has given some relief to the stock market investors, but in the real world, a big war has broken out for immediate supply of crude oil. Traders and refineries around the world are busy accumulating stocks of readily available crude oil at any price.
The real crisis of the market is hidden behind paper relief.
According to the report of Economics Times, at present there is a big and surprising difference between the futures market and the actual market of crude oil. In anticipation of the ceasefire, the price of crude oil for June delivery fell by 13 percent in the futures market to around $ 95 per barrel. But, the ground reality is completely opposite to this.
Last week, traders made 40 bids for supply in the most important ‘North Sea’ market of crude oil, but only four could get the oil. The situation is such that oil deals for delivery in the coming weeks have crossed the unprecedented level of $ 140 per barrel. ‘Dated Brent’ (the benchmark of the physical market), which was at a record level before the war, had reached $ 144 just before the ceasefire. Although now it is at $126, but this is also about $30 above the futures prices. Traders are willing to pay a huge premium of $22 to $25 over the benchmark for immediate delivery.
crude oil
Reduction in oil supply is now being felt
The reduction in oil supply from the Middle East is now clearly being felt. The number of ships passing through the Strait of Hormuz is still well below pre-war levels. According to Sultan Al Jaber, CEO of Abu Dhabi National Oil Company, the ships sailing before the war are now reaching their destinations. Now the world is really feeling that gap of 40 days, when the energy supply was disrupted.
To avoid this shortage, Asian countries, which are most dependent on the Middle East, are now buying oil from other corners of the world. India has increased its purchase of oil from Venezuela. In the first week of April itself, 60 lakh barrels of oil has been loaded for India, which is double compared to the same time in March. Japan is sourcing oil from the US and using small ships passing through the Panama Canal for quick delivery. At the same time, China has increased its purchases from Canada to a record level. For refineries, ‘energy security’ has now become more of a concern than price.
Heavy pressure on refineries, is a new crisis looming?
This huge shortage of crude oil and skyrocketing premium has broken the back of the refineries. Neil Crosby, head of research at Sparta Commodities, says that there is a clear shortage of crude oil and very soon European refineries may also have to reduce their production. If refineries reduce work, there will be a huge crisis of diesel and jet fuel in the market. Already the prices of jet fuel and diesel have reached record levels of $ 200 per barrel.
Even in a big market like America, the stock of gasoline (petrol) has come down to the lowest level in the last 16 years. President Donald Trump has also mentioned on social media about the huge crowd of tankers coming to America to collect oil. Analysts are warning that if America continues to export oil at this rapid rate, there may come a time when there will not be enough crude oil left for American refineries themselves.
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