Iran Conflict: The Physical vs Paper Price Disconnect

Why It Matters

The futures‑physical price gap reveals hidden supply stress, prompting reassessment of hedging strategies and risk exposure for traders and investors.

Key Takeaways

• Futures and physical oil markets diverge sharply amid Middle East constraints.
• Liquidity has collapsed; margin hikes limit hedging capacity for traders.
• Physical prices stay high as SPR drawdowns delay market relief.
• Tightness concentrates in March‑April cargoes, not reflected in futures pricing.
• Quant team flags positioning risk; convergence between markets remains uncertain.

Summary

The discussion centers on a widening disconnect between paper futures and physical oil markets as geopolitical tensions in the Middle East constrain cargo availability. Analysts Richard Bronze and Livia Galarati explain that while Brent futures hover around $95, physical prices remain elevated due to supply shortfalls and strategic petroleum reserve (SPR) drawdowns.

Key data points highlight a sharp drop in market liquidity, amplified by exchange‑imposed margin increases that curb traders’ ability to hedge. The quant team’s positioning analysis shows exposed short futures positions and limited new positions, while physical cargoes for March and April remain especially tight, creating a pricing gap that futures fail to capture.

Bronze notes, “The physical price reflecting millions of barrels per day lost hasn’t improved whatsoever,” underscoring the persistent floor set by dwindling inventories. He adds that the SPR will eventually be replenished, further supporting higher baseline prices. The team also points to the limited pickup in liquidity as insufficient to bridge the futures‑physical divide.

For market participants, the divergence signals heightened risk for hedgers and speculators alike, suggesting that price signals from futures may understate real‑time supply constraints. Investors should monitor margin policy changes and SPR movements, as they will likely dictate future price convergence and volatility.

Original Description

Brent at $95 suggests manageable tightness. The physical market tells a completely different story. Amrita Sen, Head of Research at Energy Aspects, walks through why physical cargoes are landing in Asia at $170/bbl, why dated Brent has hit record levels above $140, and why the futures market remains structurally disconnected — driven by liquidity collapse, margin requirements, and hedging dislocations.

This is the "why aren't prices higher?" explainer the market is asking for.

Webinar recorded on 16 April 2026

Request access to the full webinar replay: https://www.energyaspects.com/resources/insights/webinar-on-demand-north-american-gas-and-power-outlook