What we hear about the surging price of oil does not tell us the whole story about the volatile oil price; it is, in fact, far worse.
While the two main crude oil benchmarks, Brent Crude and West Texas Intermediate (WTI), which is also known as Oil Futures, have circled around $105 to $115 per barrel (p/b) for the past few trading days, what is referred to as the physical price of oil tells a different story.
This is the price the physical crude oil is priced at once it leaves the cargoes and is ready to be purchased by oil refineries. This represents the day-to-day crude oil purchases, rather than the longer-term outlook set in oil futures.
Record high physical oil price
Latest data indicate physical crude oil has reached record highs at around $144 – 150 p/b and in some cases above $150.
Much of the world’s physical oil is traded under the benchmark Dated Brent.
This shows a widening divergence between the futures and the physical oil market, while Brent Crude and WTI have pulled back in recent days, Dated Brent has gone in the opposite direction.
The price of crude oil in the real world
The all-time high prices of Dated Brent indicate much more of the real story in the global oil supply market and shows the impact of the roughly 12% of global crude oil supply or 12 million barrels per day (MBPD) crude oil are currently unable to reach markets due to Iran having taken control of the Strait of Hormuz, one of the consequences of the US and Israel military actions targeting Iran in recent months.
While the price of Brent Crude and WTI is impacted by oil supply, it is much more a speculative price, guided by geopolitical tensions, political statements, policies and not least oil traders. Whereas Dated Brent is literally crude oil supply versus the demand.
Advantage clean energy?
While the high oil price yields higher dividends for oil companies and thus allows them to extract harder, riskier and more expensive oil, and for increased oil exploration, it significantly impacts oil demand and encourages energy conservation, and gives a real advantage to clean energy technologies competing with fossil fuels and not least electric vehicles over petrol and diesel cars.
The longer the crisis and tensions in the Middle East persist, the harder it is, and the longer it takes for the oil market to bounce back.
Anders Lorenzen is the founding Editor of A greener life, a greener world.
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