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Informist, Friday, May 8, 2026

 

MUMBAI – The continuing backwardation of crude oil prices reflects an immediate shortage of the commodity, even as it mirrors expectations of marketmen that the current conflict in the West Asia is temporary. More importantly, it also suggests that crude oil refiners are under greater pressure than headline prices suggest, according to Weekly Commodity Strategy note from BMI, a unit of Fitch Solutions.

 

The use of the Dated Brent contract for gauging the impacts of elevated crude prices better reflects the stress markets are facing, it said.

 

Dated Brent is a primary physical benchmark for pricing crude oil, representing the spot market value. Unlike

Brent futures, which are financial contracts, Dated Brent refers to actual, physical oil cargo.

 

Crude oil backwardation is a market condition where current (spot) prices are higher than future delivery prices, creating a downward-sloping futures curve. This signals immediate supply tightness, high demand, or geopolitical risks.

 

Since the US-Iran war started, the crude oil market has been witnessing notable volatility in the spread between Dated Brent and front-month Brent contracts. "Dated Brent, representing physical barrels for prompt delivery, often trades at a premium to the front-month futures due to immediate demand, logistical constraints, or supply disruptions. This premium is typically viewed as an indicator of market tightness, suggesting robust demand for physical crude relative to paper contracts," it said.

 

Recent price action in Brent futures continues to reflect tension between physical tightness and shifting geopolitical expectations. The resultant volatility "reinforces our view that futures prices are struggling to

provide a stable signal of underlying market conditions."

 

It also noted that the front-month Brent prices have historically traded at a slight discount to Dated Brent, but the recent widening highlights the severe stress that crude buyers are facing. Additionally, higher shipping rates, insurance and fuel costs are adding to cost pressures for refiners (the main buyers of crude), some of whom are facing refining margins that do not support production runs. "This is leading refiners to reduce output, raising fuel costs further as more supply is lost and stocks are drawn down further."

 

The use of the Dated Brent contract for gauging the impacts of elevated crude prices better reflects the stress markets are facing. Based on this view, the agency has forecast that May will continue to see elevated prices for the contract before declining in subsequent months, following a clear peace agreement and a move towards normalisation of vessel traffic through the Persian Gulf. "Our current monthly estimates have Dated Brent settling below USD80/bbl for Q4 2026."

 

However, the headline price for Brent belies the challenges facing refiners. Despite the large spreads since the start of the conflict, refining margins — essentially the difference between the cost of crude and the value of refined products — remain under significant pressure, it said.

 

Stating that the downstream implications of this diversion are increasingly important, the note said: "Benchmark crack spreads may suggest healthy refining margins, but these are misleading when measured against the actual cost of delivered crude. While the market focuses on the impressive Brent spread, the underlying fundamentals

for downstream operations tell a much less optimistic story."

 

Taking into account these observations, BMI has kept the 2026 front-month Brent forecast unchanged at $78 per barrel but said that in an extended-conflict scenario, Dated Brent would become the preferred benchmark.  End

 

US$1 = INR 94.54 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Abhijit Doshi

Edited by Vandana Hingorani

 

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