Explained - Buyers who need crude oil today are paying over $140 a barrel; Here's why

The turmoil in the global economy is only worsening as the US-Israeli war in Iran prolongs, with rising intensity and hostilities. Another major dimension of the same is the de facto blockade at the Strait of Hormuz.

The escalation of the crisis has resulted in burgeoning crude prices.

According to S&P Global, which monitors the data, the spot price for current physical cargoes of Brent crude oil surged on Thursday to $141.36, the highest level since the 2008 financial crisis.

The price was $32.33 more than the June delivery Brent crude futures contract, which ended Thursday at $109.03.

The demand for Brent oil that will be delivered within the next ten to thirty days is reflected in the spot price. Due to the significant disruption caused by Iran's closing of the Strait of Hormuz, there is currently a constrained physical supply, as seen by the high cost of more rapid oil delivery.

While speaking on the matter to CNBC International, Amrita Sen, founder of Energy Aspects, said, "The futures price is almost giving a false sense of security that things are not that stressed."

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“You are seeing it, but the financial market is almost masking the true tightness that everywhere else is showing up,” Sen said. The price for a barrel of diesel in Europe is almost $200 per barrel right now, Sen further added.

Chevron, one of the biggest names in the fossil fuel business, underscored this development.

Last week, company CEO Mike Wirth issued a warning that the futures price does not accurately represent the extent of the interruption to the oil supply caused by the Strait's shutdown. According to Wirth, the market is based on "perception" and "scant information".

While speaking at the CERAWeek by S&P Global energy conference in Houston on March 23, Wirth further added, “There are very real, physical manifestations of the closure of the Strait of Hormuz that are working their way around the world and through the system that I don’t think are fully priced into the futures curves on oil”.

The day after President Donald Trump declared that the US would keep attacking Iran, traders were concerned about long-term disruptions to the oil supply, which caused US oil prices to settle more than 11% higher and Brent to surge over 8% on Thursday in chaotic trading.

At $109.03 a barrel, Brent crude futures ended the day $7.87, or 7.78%, higher. The US-based West Texas Intermediate crude futures reached their highest absolute price increase since 2020, rising $11.42, or 11.41%, to $111.54 per barrel.

Both benchmarks stayed below earlier in the conflict's highs of about $120 per barrel.

Trump stated that military activities would be stepped up, but he did not provide a deadline for the conclusion of hostilities. He provided no information about any actions that would result in the Strait of Hormuz reopening.