Crude surged as ceasefire collapse and US blockade exacerbate physical shortages

Crude futures rallied sharply in volatile Monday trading as the collapse of weekend ceasefire negotiations and the subsequent implementation of a US naval blockade on Iranian ports reignited severe geopolitical risk premiums.

The international Brent contract rose $4.16 (4.4%) to settle at $99.36 a barrel, while US WTI crude advanced $2.51 (2.6%) to close at $99.08. Both benchmarks retreated from extreme intraday surges of more than $8 a barrel, reflecting a paper market struggling to price in rapidly shifting diplomatic and kinetic developments.

The hesitation in the futures market contrasts sharply with acute distress in the physical sector. With the US military actively blockading Iranian maritime exports and Tehran threatening regional retaliation, physical crude grades for immediate delivery to Europe have spiked to record highs near $150 a barrel. This stark premium underscores a massive dislocation between forward paper valuations and immediate barrel availability.

Furthermore, the prolonged geopolitical disruption is beginning to crystallise into fundamental demand destruction. Reacting to the sustained inflationary pressure of the six-week conflict, OPEC downgraded its second-quarter global oil demand forecast by 500,000 barrels per day. This structural demand erosion is already reflecting in physical trade flows, with preliminary indicators showing Saudi Arabian crude allocations to major Asian consumers, specifically China, are set to fall in May.

Written by: Aiman Haikal