Brent crude’s premium to the Middle East benchmark Dubai crude rose above $3 per barrel on Wednesday, the highest it has been since late September 2023, LSEG data shows.
On Tuesday, Brent crude closed more than 4% higher as the ongoing conflict between Iran and Israel continued. Although key oil and gas infrastructure has so far been spared, traders remain concerned about potential supply disruptions, particularly through the Strait of Hormuz, a vital chokepoint for around 20% of global seaborne oil shipments.
Meanwhile, Middle Eastern crude benchmarks have firmed, with Dubai crude’s cash premium reaching a two-month high this week. The cost of chartering tankers to transport oil from the Middle East to Asia has also increased recently, adding pressure to the market.
“The EFS spread is being pulled apart by the geopolitical risk and the expectations of greater OPEC exports,” said Emril Jamil, a senior oil analyst at LSEG. “The widening will persist for as long as escalating tension is the default scenario,” he added.
The ongoing Middle East conflict, combined with concerns over slowing global growth, could prompt the US The Federal Reserve cut rates by 25 basis points in July, earlier than the market currently expects in September, according to Tony Sycamore, market analyst at IG.
Lower interest rates typically boost economic activity and increase oil demand. However, rising oil prices driven by the conflict also create inflationary pressures, complicating the Fed’s decision-making process.
