By Robert Harvey and Georgina McCartney
LONDON/HOUSTON, March 19 (Reuters) - If you want to buy a cargo of oil in Asia or jet fuel in Europe right now, you may have to pay a record price for it.
Surging oil prices in physical markets - the trading place for oil on ships, rail cars or in storage tanks - have outpaced the already dizzying increases in benchmark futures markets, as refiners and traders across Asia and Europe are snapping up whatever barrels they can secure to plug the enormous supply
gap caused by the U.S.-Israeli war on Iran.
That supply gap is expected to persist following a barrage of attacks on oil-and-gas facilities across the Middle East that has turned into the largest-ever disruption to global energy supplies. Iran has also throttled traffic through the Strait of Hormuz, the critical waterway transited by 20% of the world's oil and gas, with threats to fire on ships that attempt to sail through the narrow strait.
"It is going to take longer than people realize to bring supply back to the market even once the strait is re-opened, because we would still have a logistics nightmare," said Dennis Kissler, senior vice president of trading at BOK Financial.
Oil, gas, and refined products are critical to transportation, shipping and manufacturing industries, and energy supply and price shocks can hit consumers, businesses and economies hard, impairing demand for months or years.
Flows of crude and condensate have dropped by about 12 million barrels per day, or around 12% of daily world demand, due to output cuts and export halts by Gulf producers, according to oil shipments tracker Petro-Logistics. Those barrels cannot easily be replaced.
THE PHYSICAL MARKET SURGES
Futures prices have risen steadily since the U.S. and Israel struck Iran beginning February 28, but the moves in physical cargo prices have been far more dramatic.
Benchmark Brent crude hit a session high of $119 on Thursday, later settling around $109 a barrel. However, the benchmark Middle East Dubai crude price hit a record $166.80 a barrel. If outages persist, Brent is likely to surpass its all-time high of $147.50 reached in 2008, investment bank Goldman Sachs said on Thursday.
Cargoes of European and African crude have risen to $120 per barrel, and even barrels from Russia, which were highly discounted due to sanctions, have bounced back above $100.
The Mediterranean market was calm until the start of this week, but even those prices have risen due to fading hopes of a swift reopening of Hormuz, one crude trader said.
"What we’re seeing in spot differentials suggests a much tighter system beneath the headline price," said David Jorbenaze, global oil market lead at commodities information provider ICIS.
LOOKING FOR SOUR
Refiners have looked further afield to substitutes for Middle Eastern supply, which is mainly medium-density and high in sulphur, known in the industry as sour.
Russia's Urals, a medium sour crude, has been sold at wide discounts to Brent ever since that country invaded Ukraine due to sanctions. But that price has surged, with Urals delivered to India trading at a premium to Brent earlier this month for the first time ever.
In the North Sea, Norwegian medium sour crude Johan Sverdrup was bid at a record $11.30 premium to Brent on Thursday, an implied cash price of about $124 a barrel. Sour oil typically trades at a discount to Brent because it requires more refining. [CRU/E]
U.S. crude grades have also rallied, though the U.S. market's relative geographical isolation has opened up a yawning gap between Brent and benchmark West Texas Intermediate, which settled around $96 on Thursday.
However, the benchmark Mars sour produced in the U.S. Gulf of Mexico, a similar quality to oil produced in the Middle East, is more elevated. Mars Sour reached $107.53 on March 9, highest since July 2008, and on Thursday traded at a premium of about $6 to U.S. crude.
Prices for key transport fuels have risen even more than physical crude. Jet fuel in northwest Europe hit a record around $220 per barrel, per LSEG data, while European diesel breached $200 a barrel for the first time since 2022. Europe relies on the Middle East for both products.
Asian fuel prices rose as refiners have cut processing rates, with refinery profit margins for gasoil at their highest since June 2022 at over $60 a barrel.
On March 11, the United States and other members of the International Energy Agency announced they would release 400 million barrels from strategic reserves; the U.S. later waived sanctions for Russian oil barrels. Those moves may not be enough, Jorbenaze said.
"The market ultimately runs on barrels moving, not barrels being announced," he said.
(Reporting by Robert Harvey and Seher Dareen in London, and Georgina McCartney in Houston. Editing by Alex Lawler, Simon Webb and xx)
