Crude traders have been paying premiums for oil cargoes from the Middle East loading next year as geopolitical risks spiked in the past month, Reuters reported on Thursday, citing trading sources.
The Hamas-Israel war has increased not only the volatility in crude oil prices but also the risk of a wider conflict, leading to traders willing to pay up for crude supply from Oman and Abu Dhabi in their annual deals that were mostly concluded by late October, according to Reuters’ sources.
Some of the Oman cargoes and Abu Dhabi’s Murban cargoes with 0.5% operational tolerance in annual contracts—the volume that the buyer or seller can adjust at loadings depending on demand—were sold at $0.30-$0.35 per barrel above their official selling prices (OSPs).
Traders are also paying premiums in deals with a lower operational tolerance of 0.2%, although the premiums for Omani crude and for Abu Dhabi’s Murban and Das grades have been lower, at between $0.01 and $0.12 per barrel over the OSP for the various grades, Reuters’ sources said.
Meanwhile, the front-month oil futures have erased the gains since the Hamas attack on Israel in early October, and Brent Crude traded at around $85 per barrel early on Thursday. Markets rose after the Fed skipped an interest rate hike again, as widely expected.
“We may have underestimated the balance sheet strength of households and small businesses, and that may be part of it,” Fed chair Jerome Powell said at the press conference after the latest Federal Open Market Committee meeting on Wednesday.
Oil prices should have been supported by positive economic sentiment after the Fed continued to pause interest rate hikes, but both WTI and Brent were lower on Thursday morning.
“The hawkish tone remains in the accompanying statement,” Warren Patterson and Ewa Manthey, strategists at ING, commented on Thursday on the Fed decision and commodity markets.
“Lower crude oil inventory in the US and Europe also continued to be supportive of crude oil prices,” they said.
By Tsvetana Paraskova for Oilprice.com
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Therefore, oil traders are absolutely right to ensure that they aren’t caught short of oil supplies.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert