Physical oil deficit drives front-end pricing
The guest argued that the backwardated oil curve reflects a severe physical deficit in the front end rather than a market bet on a quick geopolitical resolution.
The argument
Buyers are prioritizing immediate physical delivery over future paper contracts due to supply uncertainty. While futures have eased from peak levels, the underlying physical market remains tight as global visible inventories draw down.
The thesis, stress-tested
✓ What validates it
- ✓Dated Brent physical premiums over futures continue to widen
- ✓US average pump prices remain sustained above $3.50 per gallon
▸ Risks discussed
- ▸A sudden diplomatic resolution reopening the Strait of Hormuz
- ▸Increased supply leakage or hidden inventories
Hear it yourself
"And you actually literally had like, there were shortages of of wood for barrels. Like, there were various points where the barrel was worth more than the oil that was in it. Like, there was this whole kind of secondary market for barrels. But, thankfully, we've done away with the barrels. And, you know, now you have very large, you know, vats of oil tankers. Which is measured in barrels of oil. But it's Exactly. Idea of a barrel is now just a unit of measurement, and then there's not actual bear like, millions of barrels. Correct. So the largest the normal largest tankers we have in the market right now are called very large crude carriers or VLCCs."
04:50
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