Brent stays elevated on physical supply stress; easing seen by May: Analyst

Middle East geopolitics exposes a deep fracture in the global oil market

 

Global financial markets remain focused on the evolving geopolitical situation in the Middle East, particularly the anticipated schedule for the second round of US–Iran negotiations and the possible extension of the current 14-day ceasefire set to expire on April 21. While recent diplomatic signals have appeared constructive, history suggests that any peace process involving Iran is rarely straightforward. Gulf Arab and European leaders have already cautioned that a comprehensive US–Iran settlement could take at least six months, dampening expectations for a swift resolution.

 

Crude oil prices initially retreated after US President Donald Trump stated that prospects for a peace deal were “looking very good,” and confirmed that discussions were underway to extend the ceasefire. A separate announcement of a 10-day ceasefire between Israel and Lebanon added to hopes of regional de-escalation. However, beneath the surface optimism, physical oil markets continue to reflect severe supply stress, underscoring a widening disconnect between political headlines and operational reality.

 

 

The Hidden aftershocks of the conflict 

 

The impact of the war on energy infrastructure is considerably more severe than futures prices currently imply. According to the International Energy Agency (IEA), approximately 13 million barrels per day (bpd) of global oil supply has been disrupted as a direct consequence of the Iran conflict and the effective closure of the Strait of Hormuz. More than 80 energy facilities across the region have reportedly sustained damage, with recovery timelines extending up to two years in some cases.

 

This structural damage has far-reaching implications. While futures markets tend to focus on expectations of future normalisation, refiners and physical buyers must confront immediate supply constraints, damaged infrastructure, and logistical bottlenecks that cannot be resolved by diplomacy alone.

 

Strait of Hormuz: A chokepoint still under strain 

 

Before the conflict, daily traffic through the Strait of Hormuz typically ranged between 120 and 140 vessels. During the height of hostilities, that number fell to fewer than 10 ships per day. With a US naval blockade still in place, commercial tanker traffic remains largely absent. This disruption has fundamentally altered the economics of global crude flows.

 

As a result, Dated Brent (spot), the benchmark for spot, deliverable crude in Northwest Europe, has been trading at extraordinary premiums of more than $25+ per barrel over futures prices. These premiums reflect not speculative excess, but the real cost of securing immediate physical supply in a market starved of reliable routes.  

 

Why has physical crude become exceptionally expensive 

 

The primary driver is the effective closure/blockade of the Strait of Hormuz since late February 2026. A $30–$40+ exchange-for-physical (EFP) spread is extremely rare and only persists when arbitrage is effectively impossible. Traders cannot simply buy cheaper futures contracts and deliver physical barrels when supply is geographically stranded behind strategic chokepoints or subject to military restrictions. In essence, the market is pricing delivery certainty far more aggressively than long-term availability.

 

As of mid-April 2026, Dated Brent has traded roughly $30–$35 above front-month Brent futures, with intraday spikes approaching $50 earlier in the month. Forties Blend, the most influential grade in the Dated Brent basket, has surged to record levels near $147–$150 per barrel — a stark signal of acute physical tightness.

 

Spillover effects on the US energy market 

 

Despite being the world’s largest crude oil producer, the United States remains structurally dependent on imports, sourcing nearly 30 per cent of its crude needs from abroad. This reflects a mismatch between refinery configurations — many built decades ago to handle heavy sour crude — and the surge in light sweet shale oil production over the past 15 years.

 

Consequently, the US exports a significant portion of its light crude to Europe and Asia while importing heavier grades from Canada, Mexico, Venezuela, and the Middle East to optimise refinery utilisation. The Middle East disruption has therefore had a visible impact on US trade flows.

 

In the week ending April 10, US crude imports fell by 1.03 million bpd to 5.29 million bpd, while exports rose by 1.08 million bpd to 5.23 million bpd. Net imports collapsed to just 66,000 bpd — the lowest level since records began in 2001 — briefly bringing the US close to net exporter status on a weekly basis for the first time in decades. 

 

Asia absorbs a rising share of US crude

 

Asia-Pacific has emerged as the primary destination for incremental US crude exports. Recent data indicate that East and Southeast Asian buyers account for nearly one-third of US loadings in April. Japan, South Korea, and Singapore alone are slated to receive more than 15 million barrels.

 

Moreover, regional refiners have already booked an estimated 50–70 million barrels of US crude for May loading, destined for July delivery. This equates to roughly 1.6–2.3 million bpd, potentially a record as buyers scramble to replace disrupted Middle Eastern supply. Europe, particularly Northwest European hubs such as the Netherlands, continues to absorb substantial volumes as well. 

 

Outlook: When can the gap close?

 

In the short term, the trajectory of the physical-paper spread hinges on one critical factor: verifiable resumption of tanker traffic through the Strait of Hormuz. If the ceasefire holds and even partial commercial flows resume by late April or early May, the Dated Brent premium could compress rapidly — potentially halving to $10–$15 within days of confirmed movements.

 

However, full normalisation will take longer. A return to the historical EFP range of $0.50–$2.00, or even $3–$5 in a post-crisis environment, will require Gulf exports to approach pre-war levels and inventories to begin rebuilding meaningfully. Tanker rates and physical differentials are likely to remain elevated for weeks, even after a political breakthrough.

 

Base-case expectations point to a meaningful narrowing of the spread by early May, with single-digit premiums possible by June, assuming no renewed disruptions. A complete return to “normal” pricing dynamics by July or August is plausible but far from guaranteed.

 

Until then, the message from the market is unequivocal: physical oil markets are pricing real scarcity, while futures markets continue to trade on hope.  Disclaimer: This article is by Mohammed Imran, research analyst. Mirae Asset Sharekhan. Views expressed are his own.