Brent spot premium collapses, physical premium shrinks from April peak to nearly nothing, market bets on return of supply surplus

⑴ Brent crude oil’s physical price continued to decline this week. The premium of North Sea Forties crude over spot Brent fell to $0.35 per barrel on Thursday, the lowest since early May and a sharp reversal from the record $21.50 per barrel premium set in April. ⑵ The spot Brent benchmark price dropped to $77.27 per barrel on Thursday, far below the $140 peak reached on April 7, which was the highest since 2008. The collapse of the physical premium reflects a rapidly fading concern about supply disruptions from the Middle East. ⑶ After the US and Iran signed a temporary agreement, traffic through the Strait of Hormuz resumed. Previously, the strait had been almost entirely closed since the outbreak of conflict at the end of February, while pre-war daily flows reached up to 20 million barrels. Expectations of supply returning are reshaping pricing logic. ⑷ Brent futures and other contract varieties also declined this week. Traders described the sharp drop in physical prices as “the trapdoor has swung open.” Oil broker analysts pointed out this reflects the market’s view that rebounding supply will drive a return to surplus. ⑸ The International Energy Agency stated this week that after the impact of the strait closure fades, the market will enter significant surplus in 2027. Short-term Brent swap contracts have also shifted to a discount. The premium structure, which reached $29.40 in April, has been completely reversed.