Oil markets traded in an unusual pattern in Tuesday’s early morning session, with Brent crude prices rising while WTI crude fell, a shift from their usual lockstep movements.
Brent crude for July delivery gained 3.16% to trade at $99.18 per barrel at 9:00 am ET on Tuesday…
With the comparable WTI crude contract falling 4.09% to change hands at $92.65/bbl a day after U.S. strikes in Iran clouded an expected peace deal.
Brent tends to react more strongly to Middle East shipping risk because it is tied more closely to seaborne crude markets. With fresh U.S. strikes on Iranian missile sites and naval assets, traders are again looking at the risk of supply disruptions and shipping delays around Hormuz.
In contrast, U.S. West Texas Intermediate is insulated by domestic production and relies less on the troubled Middle Eastern transit chokepoints. WTI futures are reacting much more heavily to evolving diplomatic headlines. When peace talks show promise, WTI prices tend to experience steep sell-offs, and recent escalations have injected massive volatility and repricing risk into U.S.-focused contracts.
But this is not the first time that the Middle East conflict has triggered some idiosyncrasies in oil markets. Last month, WTI traded at a premium to Brent thanks to severe shipping disruptions at the Strait of Hormuz, extreme market backwardation, and futures contract timing differences. Brent crude serves as a benchmark for seaborne international oil.
Because tankers could not safely clear the Persian Gulf, Brent-linked barrels ran into major logistical problems and became harder to move. U.S. WTI crude, meanwhile, sat well outside the conflict zone and became a more attractive option for buyers looking for barrels they could actually get their hands on. Asian refiners increasingly turned toward U.S. and other Western-exported crude, pushing up demand.
The dramatic shift in headline prices was also exacerbated by how the two futures contracts roll over on different schedules. Because traders anticipated the worst of the supply crunch to happen immediately in May rather than later in June, the headline May WTI price naturally surpassed the June Brent price.
By Alex Kimani for Oilprice.com
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