Brent crude is the global anchor of price discovery in oil markets and is now the primary price signal that investors are watching as the war in the Persian Gulf escalates.
At the close of trading in New York on Monday, Brent crude was $109.37 a barrel compared with the spot price for physical delivery of dated Brent crude, which was $141.26 at the close on April 1, when that market was last open.
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The divergence between the paper price of oil and the physical spot price cannot endure. Such a wide gap will result in further volatility and distortions across a large cross-section of financial markets and assets.
The risks lie not only in the disruption of the transportation of critical energy supplies but also increasingly in the destruction of oil production and refining capacity, which will further increase the spot price of physical delivery.
That in turn will drive movement in bond prices and yields, equity prices, derivative instruments, liquidity, and risk management strategies, adding new layers of complexity to businesses that must navigate a perilous new economic landscape.
