Physical Oil Flips From Bidding War To Fire Sale As Gulf Barrels Flood Back

For much of the past two months, the most important oil price in the world was the one nobody saw on TV.

While ICE Brent futures chopped around in a range, the price of actual, deliverable barrels went parabolic: as we noted at the time, Dated Brent refused to come down even as Gulf flows recovered, North Sea Forties was quoted above $140 a barrel in early October, and refiners scrambling for prompt cargoes were paying whatever it took. Regular readers will recall we have been pounding the table on this "huge physical disconnect" since the first weeks of the war, when the physical market was screaming far louder than the paper one.

Well, the physical market is screaming again. Only this time, in the other direction.

According to Bloomberg, rebounding flows out of the Persian Gulf are sending the cost of physical cargoes tumbling everywhere from the Middle East to the North Sea and West Africa. Just a few weeks ago, one of the North Sea's key grades was being offered at a premium of more than $20 a barrel to Dated Brent. On Monday, it slumped to a discount of $1.40. Meanwhile, the premium of Dated Brent itself over ICE futures, which stood at about $30 a barrel in early October, has collapsed to roughly $3.70. That is almost 90% of the physical premium gone in a month!