Refiners in Asia have asked for additional oil supply under term contracts this summer as the conflict between Israel and Iran is hiking premiums for spot supply, Reuters reported on Friday, citing sources in the oil trade industry.
As hostilities escalate, spot premiums for oil supply from the Middle East jumped this week to the highest level in four months, to more than $3 per barrel.
Meanwhile, the official selling prices (OSPs) that Middle Eastern exporters set for their term supply for loading the following month are currently lower than the soaring spot premiums.
The oil and tanker markets fear that the conflict could disrupt supply from the Middle East, pushing spot prices higher.
Customers in Asia have expressed increased interest in term supply, a source at a supplier from the Middle East told Reuters.
But it shouldn’t be taken for granted that the top Middle Eastern suppliers would materially lift term volumes for August and September, according to the trading sources who spoke to Reuters.
Moreover, tanker rates for the route via the Strait of Hormuz have doubled since Israel started bombing Iran last week, the Financial Times has reported, citing shipowners’ growing reluctance to move through the chokepoint.
The oil market’s biggest fear—the closure of the Strait of Hormuz—appears a distant prospect for now, analysts say, although they acknowledge that if oil flows are disrupted in the Strait, prices could easily hit $100 per barrel.
A significant disruption to almost a third of global seaborne oil trade moving through the Strait of Hormuz would be enough to push oil prices to $120 per barrel, ING strategists Warren Patterson and Ewa Manthey said earlier this week.
Despite persistent fears of disruption to Middle Eastern oil and LNG supply, there hasn’t been any sign yet that vital export infrastructure in Iran has been targeted.