StanChart Warns Physical Oil Premium Collapse May Be Temporary

Over the past couple of months, physical oil cargo premiums have surged as markets reacted to the threat of physical supply disruption, forcing buyers to pay significantly higher prices for guaranteed, prompt delivery of crude oil. As the conflict escalated and Iran blocked the Strait of Hormuz, buyers scrambled to secure immediate, non-Middle Eastern “prompt barrels”, driving up the spot price premiums for available cargoes. North Sea Forties crude spiked to nearly $150 a barrel by mid-April, exceeding the 2008 peak. Many commodity experts predicted that oil futures would eventually trade up to the physical; however, we have lately been seeing just the opposite, with the physical trading down to the futures.

Whereas physical prices still indicate market tightness, they have recently returned to a more normal range. Dated Brent (the primary physical benchmark for crude oil in the North Sea) settled just $0.43/bbl higher than front-month Brent on 11 May, good for a w/w fall of $11.31/bbl. Saudi Aramco’s official selling price (OSP) remains historically high; however, June saw m/m reductions to both Europe (~2/bbl) and Asia (~4/bbl) after May’s OSP recorded the largest ever m/m price increase. And now commodity experts at Standard Chartered have predicted that this downward adjustment will reverse before long.

According to StanChart, physical oil cargo premiums have collapsed–with some grades dropping 90%–due to a combination of intentional buyer restraint, increased reliance on inventory and increased supplies from non-disrupted regions.

The sharp fall in the price of physical oil can be chalked up to buyers remaining hopeful the Iran conflict would be resolved rapidly, at least in terms of the Strait of Hormuz blockades, and were dissuaded from purchasing cargoes at extremely elevated prices. High volatility and regular price swings in excess of $10/bbl in a day (front-month Brent traded in a $35/bbl intraday range on 9 March ) have increased the risk of a VaR shock i.e., an acute increase in Value at Risk.

Deferring purchases in the near term has also allowed buyers to benefit from strategic reserve and inventory drawdowns, reduced refinery run rates (and adjustments to maintenance schedules), and alternative supply sources, which have cushioned oil price spikes.

StanChart says physical prices are likely to rise once more when purchases can no longer be deferred, refinery runs pick up and strategic reserve releases are complete, unless a deal to end the conflict can be agreed. This will likely eventually pull futures prices up towards elevated physical benchmarks.

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U.S. producers continue to be among the primary beneficiaries of the ongoing energy crisis. According to the latest data from the U.S. Energy Information Administration (EIA), U.S. crude exports reached an all-time record high of 6.4 million barrels per day (bpd) for the week ending April 24, 2026, eclipsing the previous high of 5.3 million bpd set in late 2023. Combined U.S. crude oil and refined petroleum product exports hit a record peak of 12.9 million bpd in the same week. International refiners, particularly across Asia and Europe, are aggressively buying American light sweet shale oil to replace stranded Persian Gulf barrels.

Asian buyers, particularly in Japan, South Korea, and Taiwan, have sharply increased purchases. To meet this massive international demand, the U.S. has drawn heavily from commercial storage and the Strategic Petroleum Reserve (SPR), pulling down domestic inventories by over 2 million bpd. The Trump administration has initiated the sale of ~53 million barrels of crude oil from the SPR to nine energy companies, and is working toward a total release of 172 million barrels. This move is part of a coordinated international effort with the IEA to release roughly 400 million barrels worldwide following supply disruptions in the Middle East.

The European Union Aviation Safety Agency (EASA) recently authorized the broader use of US-grade Jet A fuel in Europe, over the standard Jet A-1 specification with “no regulatory obstacles”. By allowing the use of US-grade jet fuel, the supply pool has been effectively enlarged, removing some of the reliance on imports from the Middle East. However, Jet A has a higher freezing point than Jet A-1, meaning it’s mostly useful for lower altitude, short-to-medium haul flights. The development has allowed Jet fuel differentials to come off recent highs while front-month contracts are now in contango. The U.S. has maintained healthy jet fuel inventories, remaining above seasonal norms and in excess of the five-year range at 43.57 million barrels on 1 May. Meanwhile, inventories in Europe, as evidenced from measures in the larger Amsterdam-Rotterdam-Antwerp (ARA) region, have tightened quickly, falling from ~1.1 million metric tonnes (Mt) held from September to end-December 2025, to just 0.56Mt in the latest weekly data.

By Alex Kimani for Oilprice.com

StanChart Warns Physical Oil Premium Collapse May Be Temporary

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