Crude oil prices? It's all about location, location

Crude oil prices are being influenced heavily by their location, with some grades fetching substantial premiums while others are being offered at steep discounts. The widening gap is attributed to supply constraints in choke points, particularly the Strait of Hormuz, where Iran-aligned Houthi rebels have gained control and Saudi Arabia has shut down its pipeline to the Red Sea.

The Middle East conflict has led to a three-month high of $109.97 a barrel for Brent futures on September 11, marking a 57% increase from the lowest price of $70.14 on July 2. The price surge is due to Brent futures being delivered to Europe or the United States, not affected by the choke points. However, oil loaded in the Persian Gulf, unable to navigate through the Hormuz, is being offered at significant discounts.

Iraqi Basrah Medium crude for October delivery is being sold at a discount of $43.06 a barrel to Murban, a regional benchmark grade from Abu Dhabi National Oil Company. Similarly, Qatar's Al-Shaheen, which can only reach markets through the strait, is discounted by $24.92 a barrel compared to Murban. Some oil is already passing through Hormuz, albeit at a reduced rate of around 10 million barrels per day, fetching a premium of $7.00 a barrel.

Crudes outside the Middle East, however, are garnering increasing premiums, particularly as they get closer to Asian consumers. Pyrenees, a medium-sweet grade from Australia, is currently priced at $138.04 a barrel, a 96% increase since February 27, outperforming Brent's 44% rise. Another example is Angola's Cabinda oil, up 62% to $118.46 a barrel, but not to the same extent as Pyrenees.

The price differences stem from higher freight costs and longer shipping routes for Middle Eastern crudes, adapting to the disruptions caused by the Middle East conflict.