Crude oil futures are failing to reflect conditions in the physical market, according to Amrita Sen, founder and director of market intelligence at Energy Aspects. Speaking to CNBC on Friday, Sen said some physical crude prices should be trading closer to $150 a barrel. In her view, futures have drifted out of step with the reality on the ground in the Middle East.
Sen described the market as surprisingly complacent given the intensity of the hostilities in the region. She pointed to the Iran-aligned Houthis, who are targeting Saudi energy and other infrastructure, as evidence of a disruption the paper market is not capturing. In her assessment, the continued attacks on energy infrastructure in the region should be weighing on prices far more than they currently are.
Part of the problem, she argued, is that futures prices are having difficulty reflecting the true fundamentals. The distinction between paper and physical markets matters because physical crude is what market participants actually transact in, with futures serving as the reference point for those deals. Benchmarks that understate those fundamentals can leave buyers and sellers working from prices that do not match the risk environment. If some physical grades belong closer to $150, the gap between quoted futures and the value of real cargoes is substantial.
For companies buying or hedging crude exposed to the Middle East, the analysis implies that futures-based risk assessments may understate the premium attached to regional supply disruption. Sen's comments amount to a warning that headline prices are not capturing the geopolitical risk she sees in the physical market. Her remarks add to the debate over how much geopolitical risk benchmarks should carry while attacks on regional energy infrastructure continue.
Source: Oilprice
