Why has the spot price of crude oil risen to its highest level since the financial crisis, and why has the futures-spot spread reached a historic high?

Why does the closure of the Strait of Hormuz cause record-high futures-spread differences?

Interface News Reporter | Tian Heqi

Affected by U.S. President Trump’s latest statements on the Iran situation, market concerns over disruptions in Middle Eastern energy supplies have sharply intensified, with international oil prices surging strongly on April 2, breaking the $140 mark for Brent crude spot prices.

According to Xinhua News Agency, on April 1 local time, U.S. President Trump delivered a nationwide speech at the White House, unilaterally claiming a “quick, decisive, overwhelming victory” in the Iran conflict, stating that the core strategic objectives are “close to completion,” and threatening to launch stronger strikes against Iran in the coming weeks.

According to CCTV News on April 3, Haji Zolati, chairman of the Iranian Government Information Committee, responded, “Trump is definitely talking nonsense; Iran continues to exercise its power to maintain control over the Strait of Hormuz.”

Based on S&P Global data, Brent spot prices reached $141.37 per barrel on April 2, a new high since the 2008 financial crisis.

This is a significant increase over the previous day’s level of about $128, and higher than the peak during the Russia-Ukraine conflict in 2022. The spot Brent reflects shorter-term, more immediate crude oil prices.

Currently, the benchmark Brent futures price remains below the level at the outbreak of the Russia-Ukraine conflict. As of the close on April 2, WTI crude futures were at $111.54 per barrel, up 11.41%; Brent crude futures rose 7.78% to $109.03 per barrel.

The “gap” between international oil spot and futures prices has widened to $30 per barrel.

Jianie Oil’s analyst Han Zheng told Interface News that normally, the spread between Brent spot and futures prices stays around ±$2, but this time, the spread has hit a record high.

Han Zheng said that market information indicates that Brent spot supply may have recently tightened, with about six tankers’ loading operations delayed at European ports. Market concerns about further reductions in Brent spot supply have exacerbated the supply-demand imbalance, causing the spread between spot and futures prices to widen further after entering April.

Goldman Sachs commodities expert Tallulah Adams stated in a report that the sharp expansion of the physical oil price and futures price gap indicates that the futures market is increasingly pricing in a ceasefire, while the spot market is pricing in scarcity.

Fattah Birol, Executive Director of the International Energy Agency, warned this Monday that the situation in the Middle East is “very severe,” worse than the two oil crises of the 1970s combined, as well as the impact of the Russia-Ukraine conflict on natural gas.

As a crucial route for about 20% of global oil supplies, the Strait of Hormuz has been closed for over a month, causing the largest supply disruption in oil market history.

Multiple institutions have issued warnings that oil prices may surge to even higher levels.

JPMorgan said that in the short term, oil prices could rise to between $120 and $130 per barrel, and if the Strait remains closed until mid-May, prices could reach over $150 per barrel.

Goldman Sachs also expects prices to continue rising. The bank warned that if the supply disruption persists, the benchmark Brent crude price could surpass the roughly $147 per barrel high set in 2008.

The bank estimates that in the worst-case scenario, if oil supplies transported through the Strait remain very low for over two months and production resumes at 2 million barrels per day, by Q4 2027, Brent crude could reach about $111 per barrel.

Top energy advisor Bob McNally, who was interviewed by the media two weeks ago, said that oil prices could soon break the high levels seen during the financial crisis.

Bob McNally, president of Washington D.C.-based Rapidan Energy Group and former White House energy advisor under George W. Bush, stated that given the supply disruptions caused by the Iran conflict, there is significant room for prices to rise.

McNally believes Brent crude could rise close to $150 per barrel. After reaching the peak, as the economy slows and consumers cut back on spending, he expects oil prices to fall “in a free fall.”

He claims that prices could soon reach levels unseen since the 2008 financial crisis. Brent crude, the international benchmark, has already surged 80% this year. If prices break the 2008 high of about $147, that would mean a 35% increase from current levels.

“I think it could reach triple digits (close to $200),” McNally said, but he also pointed out that the outlook remains highly uncertain. He speculates that once prices peak, U.S. economic data could be impacted.

In response to the severe situation, the international community is seeking solutions.

According to Xinhua News Agency on April 2, UK Prime Minister Rishi Sunak said he would convene a meeting of 35 countries to discuss how to reopen the Strait of Hormuz, excluding the United States.

Sunak also said that UK military planners will hold a meeting “to explore how to coordinate capabilities after the conflict ends, to restore passage through the strait and ensure safety.”

Additionally, media reports indicate that at the April 5 meeting of eight member countries, OPEC+ may consider further increases in oil production, enabling major oil-producing countries to quickly ramp up supplies once the Strait reopens. At the previous meeting on March 1, OPEC+ agreed to a slight increase of 206k barrels per day in April. The Sunday meeting will decide on production quotas for May.

The rise in international oil prices has already affected consumers.

By 24:00 on April 7, domestic refined oil prices will be adjusted. Longzhong Information predicts that, given the ongoing rise in international crude prices during this cycle, refined oil prices will also trend upward.

As of April 2, the average reference crude oil price for this cycle was $109.06 per barrel, up 2.24% from the previous cycle. When the price adjustment window opens, the corresponding increase in refined oil prices is estimated to be around 130 yuan per ton.

Longzhong Analysis pointed out that on the supply side, there are still no signs of substantive easing in the Iran-U.S. conflict, and the Strait of Hormuz remains blocked. Oil-producing countries in the Persian Gulf, including Saudi Arabia, have been forced to significantly cut production, with supply risks continuing to increase, supporting higher oil prices.

On the demand side, global demand remains sluggish and is slowly improving, while Middle Eastern conflicts have led many Asian refineries to reduce operating loads, decreasing crude oil consumption. The Federal Reserve is also unlikely to cut interest rates in the short term, with increasing support for rate hikes.

Since the beginning of this year, domestic oil prices have undergone six adjustments, with a pattern of “five increases, zero decreases, and one pause.”