Oil traders are paying premiums to Middle East crude cargoes that will be loading in the next year due to geopolitical risks.
Although geopolitical risks have added to the price of annual oil contracts, futures for the first month are now back at levels seen just before Hamas' attack on Israel.
WTI and Brent prices were lower on Thursday, despite the Federal Reserve's decision to not increase interest rates.
Crude traders are a growing industry.
Paying premiums for oil cargoes coming from the Middle East
On Thursday, trading sources were cited.
The Hamas/Israel conflict has not only increased the volatility of crude oil prices, but also the likelihood of a larger conflict.
Traders are willing to pay more for crude oil from Oman and Abu Dhabi as part of their annual deals, which have been mostly completed by the end of October.
The Oman and Abu Dhabi Murban cargoes that had a 0.5% operational tolerence in annual contracts (the volume the buyer or seller may adjust at loadings based on demand) were sold for $0.30-$0.35 a barrel over their official selling price (OSPs).
Reuters' sources reported that traders are also paying higher premiums when dealing with a 0.2% operational tolerance. However, the premiums paid for Omani crude oil and Abu Dhabi's Murban or Das grades were lower. They ranged between $0.01 to $0.12 per barrel above the OSP.
[ZH: Although not apples to apples, the short-term differentials can give a good idea of premium increases]
The front-month is the first month.
Brent Crude was trading at $85 per barrel on Thursday morning, having erased gains made since the Hamas attacks on Israel early in October.
The markets rose as expected after the Fed opted to not raise interest rates again.
Fed chair Jerome Powell: 'We might have underestimated balance sheet strength for households and small business, and this may be part and parcel of the problem.'
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The Federal Open Market Committee held its latest meeting on Wednesday and held a press conference following the event.
The Fed's decision to continue to pause rate hikes should have supported oil prices, but WTI and Brent both fell on Thursday morning.
ING strategists Warren Patterson and Ewa Mannthey say that the accompanying statement still has a hawkish tone.
On Thursday, we discussed the Fed's decision and the commodity markets.
They said that the lower crude oil inventories in Europe and the US also continued to support crude oil prices.