Blasé Capital PAPER vs PHYSICAL

There are, of course, some experts who predict that global crude prices may climb up to $200 a barrel, or double the current figure. There are those who contend that the International Energy Agency’s (IEA) announcement of the largest “coordinated emergency release” of oil stocks, 400 million barrels from its reserves, will act as a huge counter, and crude will hover around $100 or so, and settle at $90. Between these two extremes, nations and policy-makers, both producers and consumers, are unable to figure out strategies in real time. This is evident from the huge difference in the paper and physical prices of crude. The futures, which spiked to $120, are at $100. “However, the premium of physical Dubai crude has surged to $38 per barrel over its paper equivalent,” according to data compiled by a news agency. The wide gap, the latter hinting crude at nearly $150, tells a new story.

According to the ‘paper’ believers, as mentioned earlier, the release of IEA’s emergency stocks, coupled with the US President Donald Trump’s calming comments that the war will end soon are huge balm. It is another matter that Trump keeps changing his statements, and only yesterday claimed that although Iran’s main oil port was destroyed, America may still bomb it “just for fun.” Iran seems to be interested in ending the war, although it has set stiff conditions for the western world. Europe wants an end to the war. But Israel wants an end to Iran, and the Middle East nations, who bore the brunt of the Iranian missiles over the past two weeks, want a weak, rather decimated, Iran. Hence, there are pressures and counter-pressures, but the ‘paper’ theorists seem sure that either the war will end, or supplies increase.

However, the ‘physical’ believers say that the war is unlikely to end soon, and even the emergency supplies may be a matter of too little, too late. “The IEA-coordinated release will take weeks and possibly months to reach the market. The US release of stocks as part of the IEA action will take about 120 days to complete,” according to ING’s strategists. They explain that if similar timelines are assumed for the release by the other nations, the extra flows will be just over three million barrels per day, which is “far short of the supply losses we are seeing from the Persian Gulf.” According to the IEA, Gulf producers slashed their combined crude output by at least 10 million barrels per day due to the Iran crisis. In addition, according to some experts, the “supply volumes at risk this time are dimensionally bigger, and real” when compared to the Russia-Ukraine war in 2022, when supplies flowed freely.

Asia, especially large consumers like India and China, are caught in the middle. One, the two nations will compete fiercely and aggressively for the Russian supplies, which the US has allowed until April 11, 2026. “Asia’s alternative crude supply sources are severely limited…. Asian refiners will struggle to fulfil crude buying requirements for April, leading to run costs across the region. Refiners will be dipping into their buffer stocks, which is typically up to 15 days of their needs,” says an analyst. Others agree that Indian stockpiles are among the lowest in the region. Until now, the crisis in India has engulfed the LPG market, mainly because of mistaken policies, and statements. Withdrawing huge chunks from the commercial segment to maintain supplies to the households backfired as it created a panic reaction, which rocked the tech platform that was crucial for supplies. Demand surged as suppliers and buyers both resorted to hoarding once they read and heard media headlines that screamed of restaurants shutting down.

More importantly, while Trump and his loyalists irregularly and with uncertainty claim that the Iran war is almost over, and oil supplies are enough to sustain the global demand, there are few takers. This is because, as mentioned earlier, the same people say in the same breath that the US military is focused on “military operations, and solving a crisis.” This implies that the solution is not over. In addition, the same loyalists contend that the American Navy is not ready to escort tankers through the crucial Strait of Hormuz. Which implies that the war is on, and unlikely to end soon. Caught between these statements, what they mean, and their implications are the pessimists and optimists, and many who do not know what to believe, or make of the situation. As a media report explains, “While the paper market reacts to comments and attempts at assurances, the physical crude market is flashing signs of stress and distress as a large portion of global oil supply is now off the market for weeks, possibly months.”

Some of these twists, paradoxes, and contradictions are visible in India. There was news that Iran, as a friendly gesture, allowed two ships to sail from the Strait of Hormuz to India, and more tankers may be allowed in the future. Indian officials claimed Iran to be a friend, which will not try to disrupt oil supplies to India. Iranian sources claimed that this was not the case, and tankers through the Strait are at risk.