Physical crude trades shot above $140 this week. Look, traders and refiners are racing to lock down barrels they can load and ship today.

Scarcity shows up in spot markets

Ten weeks ago, oil traders were arguing over how to deal with too much crude. Now they're arguing about where to find any at all.

In the North Sea — the world's biggest physical crude hub — buyers submitted roughly 40 bids for nearby cargoes this week, yet sellers only offered four lots, according to market reports. Cargoes that will be delivered in the weeks ahead changed hands at prices topping $140 a barrel, a level traders described as rare.

That frantic bidding marks a sharp shift in tone from futures markets, which briefly rallied on hopes for a ceasefire and saw some contracts pull back. But the physical market is signaling something more immediate: supply ready to load is scarce and refiners want it now.

"There is simply a shortage of crude," said Neil Crosby, head of research at Sparta Commodities AS. His verdict matched what traders on both sides of the Atlantic were saying — the paper market is running into the hard reality of missing physical barrels.

How big is the hole?

Estimates of the disruption are staggering. Analysts put the amount of crude sidelined because of the Middle East conflict at about 12 million to 15 million barrels per day, a gap that dwarfs usual swings in supply.

That's not a minor wobble — it's a shock the system wasn't built to absorb.

Producers and exporters have promised boosts and governments have released oil from strategic reserves, yet supply still isn't catching up to demand. Traders point to backwardation — near-term contracts trading at a premium to later months — as proof the market expects near-term tightness.

Dated Brent, the metric that tracks the price of physical barrels for immediate delivery, climbed to $141.26 last week — the highest level since 2008. "It's like the last bottle of water: You're willing to pay anything for it," said Vikas Dwivedi, global energy strategist at Macquarie Group. He was trying to put into words why ready-to-ship crude can attract such eye-popping premiums.

Refiners scramble; product markets feel the strain

Refiners don't just buy crude. They need specific grades at specific times to keep plants running and to produce diesel, jet fuel and gasoline. Many have been forced to look farther afield, chasing cargoes that weren't on their shopping lists a month ago.

That scramble is already bumping into the fuels market. Jet fuel prices have doubled over roughly the past month as crude shortages translated into tightness in refined products. Airports normally keep only a few days' worth of jet fuel on hand. Airlines largely stopped hedging fuel costs after pandemic turmoil — and now they're feeling exposed.

When refiners in Asia pay up to secure cargoes, it pushes European refiners toward the same decision: either pay more or slash runs. "At this rate even European refiners will have to lower utilization, perhaps as early as next month," Neil Crosby said. Cutting runs would ease crude demand but deepen shortages of diesel and jet fuel — the very products the global economy needs to move people and goods.

Who is charging what?

Thing is, producers of sought-after grades are seizing the moment. Saudi Arabia has been asking for record premiums on some crude sales, with reported requests of $19.50 a barrel over Arab Light benchmarks for Asia and offers up to $30 above Brent for European buyers, according to published reports. Those premiums make any available cargo extra valuable.

That pricing pressure is already showing up in consumers' wallets. Andy Lipow, president of Lipow Oil Associates, estimated Americans are spending about $830 million more a day on transportation fuels than before the war began. That's a rough measure of how higher crude and refined fuel prices feed through to everyday life.

Paper versus physical — a widening gap

Futures traders have tried to price in politics and diplomacy. When news of a fragile ceasefire emerged, oil for future delivery slipped — June contracts reportedly fell as much as 13% in a week to about $95 a barrel. So the paper market moved on expectations.

But the vessels already in the system reflect yesterday's reality. Sultan al Jaber, chief executive officer of Abu Dhabi National Oil Co., pointed to that lag in a LinkedIn post: "The final cargoes that transited the Strait of Hormuz before the conflict are now arriving at their destinations. This is where the paper traded markets are meeting physical reality, and the 40-day gap in global energy flows is truly exposed."

Traffic through chokepoints like the Strait of Hormuz has ticked up slightly — two Chinese supertankers and one Greek tanker moved through recently — yet flows remain well below pre-conflict levels. Even if shipments resume, it takes weeks for Gulf crude to reach refineries in Asia and Europe. So any relief arrives slowly.

Market mechanics and real-world impact

Backwardation and premium-priced cargoes are more than trader talk. They're forcing companies to choose between paying steep premiums or cutting output. When refiners cut runs, diesel and jet fuel supplies shrink. That can touch airline schedules and freight costs; delaying cargoes raises costs for producers and consumers.

Look, governments can deploy emergency reserves. They've done so. But strategic releases are finite. Producers can try to pump more. OPEC+ members have signaled potential increases. Still, those moves won't instantly replace millions of barrels lost to conflict. It takes time to ramp production, and not every field can make up lost output on short notice.

What's more, even if diplomatic progress eases shipping risks, the physical market will still feel the gap left by lost cargoes for weeks. Traders and refinery planners aren't treating that as theoretical — they're acting now, paying up for what's available and cutting runs where necessary.

Risks for the economy and companies

Higher fuel costs have a direct route into inflation and corporate margins. Airlines already face ballooning fuel bills. Logistics firms will encounter higher diesel costs at the pump and for fleets. Manufacturers that rely on diesel or jet-propelled supply chains could see input costs rise.

That sets up a tension: higher fuel costs slow demand growth, which eventually cools oil prices. But soon, the shock is local and acute. That means supply-chain planners and corporate treasurers have to deal with higher bills today while watching for the demand response tomorrow.

Thing is — traders are acting like there's no slack left. That behavior can itself make markets tighter. When buyers become convinced a shortfall is coming, they pay premiums and hoard stock. That pushes prices higher and can spark a feedback loop of scarcity.

For now, the market is living between two realities: futures reflecting hopes for diplomacy, and the physical market reflecting the daily arithmetic of ships, ports and refinery runs. The latter is in the driver's seat when barrels are scarce.

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"The longer this goes on, the scarier it is. Today we might not have a shortfall, but eventually we will," said Andy Lipow, president of Lipow Oil Associates.