Bloomberg reports oil premiums collapse 90%

Bloomberg reported on May 10 that the cost of physical oil cargoes was falling quickly as buyers stepped back, a sharp reversal from the bidding frenzy that had gripped the market in April despite the continued closure of the Strait of Hormuz. That matters because the physical market and the futures market do not measure the same thing at the same moment. Brent backwardation tells traders that prompt barrels are still priced above later deliveries, while physical premiums track what refiners are willing to pay for a specific cargo, grade and loading window. Morgan Stanley said in April that buyers were paying “an exceptional premium” for secure Atlantic Basin barrels available immediately, and that the futures market and physical market were pricing different combinations of immediacy, tightness and expected persistence. (bloomberg.com) ### Why can physical premiums fall if the market is still tight? May 10 is the key date in Bloomberg’s latest account: buyers had backed away enough for real-world cargo costs to drop fast, even though the broader disruption had not been resolved. Bloomberg said traders still warned the respite could be brief because the industry was relying on stopgap measures that could not fill the gap indefinitely. (bloomberg.com) A physical premium can collapse from an extreme level without meaning supply is suddenly comfortable. If a handful of refiners delay purchases, draw inventories, swap grades or wait for replacement cargoes, the last-cleared premium can fall sharply from panic highs. Bloomberg described that move as a “dramatic reversal” from April’s scramble for immediately available supply. (bloomberg.com) ### What did April’s squeeze look like before this reversal? April 11 was the point when Bloomberg described “a desperate scramble for cargoes” across the oil market. In the North Sea, traders submitted 40 bids for cargoes in one week and only four were met by offers, while cargoes for delivery in the coming weeks changed hands at prices above $140 a barrel. (bloomberg.com) April 7 added a second marker. Morgan Stanley said the stress from the Middle East war was showing up in huge premiums for prompt physical barrels, especially refinery-usable Atlantic Basin crude available now. The bank’s argument, as quoted by Bloomberg, was that this did not mean the futures market was broken; it meant different parts of the oil complex were responding to different constraints. (bloomberg.com) ### Why does Asia keep coming up in this story? March 5 is when Bloomberg described a deepening oil crunch across Asia, with suppliers of products from shipping fuel to cooking gas cutting back sales to manage shrinking stockpiles. Bloomberg tied that squeeze to a widening Persian Gulf conflict that had all but halted traffic through Hormuz, the route linking major producers with consuming markets. (bloomberg.com) Asia is central because it depends heavily on seaborne crude and products moving out of the Gulf. When cargoes are delayed or rerouted, Asian refiners and fuel buyers feel the shortage first in replacement costs, inventory drawdowns and product availability. That is consistent with Bloomberg’s reporting that the region’s fuel markets were already tightening months before the latest retreat in physical premiums. (bloomberg.com) ### What is the cleanest way to read the disconnect now? The International Energy Agency said on March 12 that the war was creating the largest supply disruption in the history of the global oil market, hitting 7.5% of global supply, and IEA members agreed to release 400 million barrels from emergency reserves. The cleanest reading is narrower than the social-media version: Bloomberg has verified that physical prices cooled in early May after April’s panic, but Bloomberg also reported trader warnings that the calm may be short-lived. (bloomberg.com) That leaves a market where spot cargo premiums can fall sharply from extreme highs even while structural disruption, emergency stock releases and regional tightness remain in place. (bloomberg.com) The next hard markers are scheduled reports rather than slogans. The IEA’s monthly oil market report and OPEC’s monthly oil market report will provide the next named updates on supply losses, emergency stock use, refinery demand and Asia balances. (bloomberg.com 1) (bloomberg.com 2)