[Salon] Oil: higher for longer - ArabDigest.org Guest Post

Oil: higher for longer Summary: a clear lack of understanding among key policymakers in Washington over how commodity markets really work stands to make the war-induced energy crisis even worse than would otherwise have been the case. We thank our regular contributor Alastair Newton for today’s newsletter. Alastair worked as a professional political analyst in the City of London from 2005 to 2015. Before that he spent 20 years as a career diplomat with the British Diplomatic Service. In 2015 he co-founded and is a director of Alavan Business Advisory Ltd. You can find Alastair’s latest AD podcast (with Jim Krane) here. The futures price is giving those in charge a false sense of security. The real price of oil is the price refiners and sellers are transacting at and that they will ultimately pass through to consumers. Amrita Sen, Financial Times, 14 April 2026 One of the peculiarities of markets which is not widely understood is that commodities have two prices, i.e. the futures price, which is what we all see in the headlines and the spot price. Both are contracts between a buyer and a seller but they differ over the timing of the transaction and the delivery date of the commodity. The former, as the name implies, applies to a deal which is going to happen at some point in the future. The latter refers to a transaction to be executed immediately. In the oil market, current spot prices in Europe and Asia strongly suggest that even the elevated futures prices we have been seeing these past weeks (i.e. around US$100 per barrel for Brent crude) could yet be topped by a considerable margin. As oil expert Amrita Sen spelled out in her FT op-ed from which the quote above is taken, spot prices in Europe have been ranging towards US$150pb. Worse still, once the price of shipping is added, physical cargoes are being offloaded in Asia at anything between US$150 and US$170pb. This is not to say that I am firmly predicting that futures will be around US$150pb in two months time (i.e. the normal length of an oil futures contract). Nevertheless, BP’s former chief economist Spencer Dale has estimated that the demand globally needs to fall by about ten million barrels per day (bpd) to accommodate the ongoing supply side shock. This implies a rise in the spot price of around 100 percent compared to ‘just’ 60 percent to date in Europe. With a double blockade of the Strait of Hormuz still in place and Iran and the US reportedly “still far” from an agreement (Donald Trump’s unsubstantiated claims to the contrary notwithstanding), it would take something truly tectonic to stave off further price rises — perhaps ‘the grandmother of all Tacos’! A significant disconnect between relatively stable oil futures prices and much higher physical spot prices, which are being driven upward by supply shocks and geopolitical tensions in the Strait of Hormuz, means the U.S. may resort to dramatic market interventions, such as an export ban, to lower domestic gasoline prices ahead of the upcoming midterm elections. All this being said, the International Energy Agency’s (IEA) latest monthly Oil Market Report does offer a glimmer of hope in that it is still forecasting that, overall, supply will exceed demand through the year — albeit only by 410,000bpd compared to the 2.46mbpd predicted in its March report. But this is predicated on a price-driven drop in demand of 1.5mbpd in 2026Q2 rooted in a supply shortfall of 10.1mbpd in March (i.e. consistent with Mr Dale’s calculations), rising to 13mbpd this month. Furthermore, even this mixed picture hinges on an IEA base case in which ‘normal’ flows of oil and gas through the Strait of Hormuz resume by mid-year, albeit at something below pre-28 February levels. And its alternative scenario paints a picture of longer-term supply disruptions and associated price hikes which cause demand to fall by 5mbpd year-on-year by 31 December. Irrespective of which scenario unfolds, what happens when there is seemingly no longer any risk of attacks on shipping looking to pass through the Strait? In an 8 April analysis headlined ‘The third Gulf war will scar energy markets for a long time yet’, The Economist noted that it was two months after the Huthis stopped attacking ships in the Red Sea in October of last year before Maersk dared risk one of its container ships in the Bab-el-Mandeb Strait; and that traffic in that waterway has still not returned to normal. Thus, and even putting the question of tolls to one side (a marginal additional cost if, that is, one considers it purely in monetary terms rather than as a matter of principle) as The Economist points out: When shipping companies do test the strait [or Hormuz], their insurers will charge hefty premiums. So the resumption of regular traffic is likely to take weeks, and to cost much more than before the war. Furthermore, once the 187 tankers and 15 LNG carriers currently trapped in the Gulf have managed to get out (after which it will take at least three weeks for them to reach markets),“owners of the most valuable vessels, such as LNG carriers, may decide to dodge [the] risk [of making the return journey] altogether”… at least for some time to come. As if this were not all bad enough, even in the unlikely (in my view) event of Iran and the US finalising a deal this week it may not be soon enough to prevent Mr Trump from making matters worse still. His periodic efforts to talk down the oil price confirm that he follows it closely. But I strongly suspect that he is among “those in charge” believed by Dr Sen to be getting “a false sense of security’’ from the futures price. And with America’s driving season starting around ten weeks from now he simply does not have until the midterms in November to get the price of gasoline back anywhere close to its pre-war level of two bucks/gallon. In Arab Digest’s 8 April podcast I touched on the possibility of Washington imposing an export ban. With US oil exports to Asia, already unusually high in response to the war, set to double to 2mbpd this month, Dr Sen believes that “to avoid shortages in the US, policymakers will have to accept a higher price or consider dramatic market interventions like restricting exports”. (NB: according to the marine analytics firm Kpler 71 Very Large Crude Carriers are currently sailing to the US to take on cargo compared with an average of 27 on any given day last year.) Even if the Republicans were not already facing a ‘blue wave’ election where affordability is the key issue, I simply cannot see Mr ‘America First’ Trump opting for protracted higher gasoline prices when there is an alternative available irrespective of its negative impact on the rest of the world. Coupling this prediction with the title of this Newsletter, I shall draw a line on forecasting oil for now! Members can leave comments about this newsletter on the Arab Digest website.