Oil panic lifts premiums

Oil traders are paying extra for barrels now because war risk, shipping delays and refinery cutbacks have turned a surplus market into a shortage market. (eia.gov) The United States Energy Information Administration said on April 7 that the Strait of Hormuz has been effectively closed to shipping since February 28, and that Brent crude averaged $103 a barrel in March after averaging $32 less in February. The agency said daily Brent prices reached almost $128 on April 2. (eia.gov) That “premium” is the extra price buyers pay for the chance that supply gets worse before it gets better. The Energy Information Administration said shut-in Middle East production averaged 7.5 million barrels a day in March and is expected to peak at 9.1 million barrels a day in April. (eia.gov) Before the conflict, forecasters expected too much oil, not too little. The Energy Information Administration said inventories had been building and prices had been falling because output growth from countries outside the Organization of the Petroleum Exporting Countries and allies was outpacing demand. (eia.gov) Reuters reported on April 10 that eight analysts now expect global oil demand to exceed supply by 750,000 barrels a day on average in 2026. The same Reuters poll in September had pointed to a 1.63 million barrel a day surplus this year. (kitco.com) The bottleneck is not only wells and pipelines. Reuters reported that about 136 million barrels of crude and refined products were stuck in the Gulf, and Macquarie strategist Vikas Dwivedi said insurance problems and sanctions risk could slow tanker traffic even after any ceasefire. (kitco.com) Refiners react differently from producers in a shock like this. When crude becomes expensive or hard to secure, some refiners cut processing runs rather than buy feedstock at prices that could wipe out margins, which reduces fuel output even if headline oil supply later improves. (iea.org) Governments have already moved to cushion the blow. The International Energy Agency said member countries agreed on March 11 to release 400 million barrels from emergency reserves, the largest collective stock release in the agency’s history. (iea.org) The latest twist came on April 13, when CNBC reported that a new United States naval blockade order halted tanker traffic that had only just begun to recover after a two-week ceasefire. West Texas Intermediate jumped more than 8% to $104.40 a barrel and Brent rose more than 7% to $101.86. (cnbc.com) That is why traders keep talking about panic, not balance. Even if the waterway reopens, the Energy Information Administration said the backlog, rerouted trade and risk of fresh disruption are likely to keep a premium in oil prices through late 2026. (eia.gov)