The “real” price of oil may be more than $30 higher than the price that most investors track—and those elevated levels could keep gasoline prices high for much longer.
Most investors keep their eyes on the price of Brent or West Texas Intermediate crude—benchmark prices established in futures markets in Europe and the U.S. respectively. Both of those benchmarks were down 13% this week to a little under $100 per barrel, their largest drops since 2020.
But it’s increasingly important for investors to watch spot prices—the price at which oil changes hands in the physical market. Right now, spot crude prices measured in the North Sea are trading above $135 per barrel, and earlier this week they rose to all-time highs of $144.
Spot prices and futures prices are suddenly living in two different worlds, “a price anomaly as weird as watching the dark side of the moon,” says Jaime Brito, the executive director of refining and oil products at OPIS, a data firm that is owned by the same parent company as Barron’s.
While futures represent investor expectations for the months ahead, spot prices represent what buyers are willing to pay now for supply. Futures may be pricing in a rosy view of where the Iran War goes from here. In particular, investors seem confident that the Strait of Hormuz will reopen to full traffic sometime in the next couple of weeks.
Spot prices reflect that the strait is still very much closed, and the real physical impact of the war has been brought to bear. More than 10 million barrels of oil a day is offline today, representing at least 10% of global supply. With such a large shortage, buyers need to compete for the remaining barrels, forcing prices much higher.
“That’s really the real price that refiners are paying,” said Daniel Sternoff, a senior fellow at Columbia University’s Center on Global Energy Policy. “And that’s what filters through into the economy.”
The price that refiners pay impacts the price that consumers pay at the pump. If refiners are still paying near-record prices for crude, they’ll be less likely to reduce the price for consumers. At an average national price of $4.15 per gallon, gasoline is still at the same level where it was before the cease-fire was announced, and is actually higher than it was a week ago.
The rise in crude prices also appears to be impacting refining stocks. While they are clearly benefiting from surging gasoline and diesel prices, refining margins are being squeezed by high spot crude prices. After spiking earlier this year, refinery stocks have been more flat lately. The VanEck Oil Refiners ETF is up just 3.7% in the past month.
Write to Avi Salzman at avi.salzman@barrons.com