Physical Oil Prices Drop in Mideast

SUBSCRIBE SEARCH ARTICLES NEWS The physical prices of some Middle East crudes sold outside the Persian Gulf have dropped. Image by Techa Tungateja via iStock

The physical prices of some Middle East crudes sold outside the Persian Gulf have dropped, with producers and global traders getting more adept at pushing cargoes through the Strait of Hormuz despite attacks.

The number of offers for spot grades has risen in recent days, with shipments being marketed at more competitive prices, according to Asian refiners who received offers, declining to be named discussing commercial information.

Among signs of the shift, a cargo of Iraqi Basrah Medium crude was sold at a discount of almost $10 a barrel to the physical Dubai benchmark on a ship-to-ship transfer basis in the Gulf of Oman, outside Hormuz, they said. A month ago, Iraqi Basrah was offered at near parity to Dubai, they said.

The global oil market remains zeroed in on flows through Hormuz — which connects the Persian Gulf to global markets — as the US-Iran war nears the end of its eighth month. Ahead of US midterm elections in November, Tehran appears to have stepped up assaults on shipping. At the same time, President Donald Trump says more crude is exiting the region than before the conflict.

The declines in the prices of some physical Middle Eastern crudes contrast with trends in benchmark oil futures. Brent contracts are on track for a third weekly gain, hitting the highest since May on Friday. Differences between physical and futures markets have been a feature of the war.

“While Middle East flows are holding up well for now, the real concern for the market is how sustainable these would be with renewed attacks, which helps to explain the divergence between the paper and physical market,” said Warren Patterson, head of commodities strategy at ING Groep NV.

“The move higher in oil futures is not fundamentally driven at the moment, instead the market is trading supply risks,” he added. Brent futures were last nearing $115 a barrel, up from about $103 a month ago.

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The slumping prices for physical barrels of Iraqi crude, along with other grades, are due to increasingly competitive offers, which come with assurances of an ability to get oil out of the gulf, according to the traders.

In addition to the activity focused on Iraqi barrels, there’s been greater interest overall. This week, refiners in India, Taiwan and South Korea bought or issued tenders for crudes that can be delivered as late as early 2027. Meanwhile, Khafji, from the Saudi-Kuwaiti neutral zone, and Al-Shaheen crude from Qatar have both been offered for deliveries as late as next January.

Other physical grades from the region, including Omani crude, have dropped as a result. The premium for that variety over Dubai recently slid to a three-month low. Murban, which is exported from outside Hormuz, has also softened.

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