On Wednesday, the cargo spot price for Brent crude oil hit $124.68 per barrel, indicating that an Iran ceasefire deal is unlikely to resolve severe supply disruptions caused by the five-week war.
In contrast to futures contracts for Brent crude for delivery after June, the spot price determines Brent crude for delivery within the next 10 to 30 days.
Spot prices fell $19.75 following the two-week ceasefire agreement between the United States and Iran, according to S&P Global, which tracks the data.
However, it remains nearly $30 above the June Brent futures contract, which closed at $94.75 on Wednesday. Rising prices for physical cargo indicate that oil supplies will remain tight for some time even if the ceasefire agreement holds.
Actual cargo spot prices reflect the reality on land and on the high seas, said Amrita Sen, founder of Energy Aspects. Sen said oil producers in the Middle East had cut production by 13 million barrels a day as tanker traffic through the Strait of Hormuz plummeted.
Sen said most tankers are currently heading to the United States to recover oil there. It could take until June to get those ships back to the Middle East, she said.
“It’s a total mess,” Sen told CNBC’s “The Exchange” on Wednesday.
Amena Bakr, a Middle East and OPEC expert at Kpler, said the war has forced hundreds of millions of barrels of oil off the market. Bakr told CNBC that it could take as long as five months to restore production capacity.
“How long this ceasefire lasts depends on how long it lasts and whether it leads to a peace agreement,” Bakr told CNBC’s “Morning Call” on Wednesday.
Kuwait Oil Corporation’s CEO said in March that it would take up to four months for producers in the Gulf Arab state to fully restore output to pre-war levels. Before the war, Kuwait produced about 2.6 million barrels per day, making it the fifth largest producer in OPEC.
Sheikh Nawaf Al Sabah told the oil industry at the S&P Global Energy Conference CERAWeek in Houston on March 24: “We have resilient reservoirs that will draw significant amounts of production very soon, within days. Most of that will come within weeks and full production will come within three to four months.”
