What the record gap between spot Brent and Brent futures reveals about the oil market

In trading on Monday (April 13), the cash price of Brent on the physical market (dated Brent) was around $132.74 per barrel, substantially higher than the $99.36 per barrel for Brent futures for June, according to figures compiled by The Wall Street Journal.

A rare gap between spot and futures

Gary Ross, chief executive of Black Gold Investors, said the large difference between the two prices is unusual. “The oil market has never faced a situation where large supply disruptions coexist with a high degree of uncertainty,” Ross told The Wall Street Journal.

One driver of the gap is a severe shortage in the physical oil market, which tends to widen the spread between spot and futures prices.

Contract mechanics differ for Brent and WTI

At CERAWeek last month, Dave Ernsberger, President of Energy at S&P Global, said the nearest-month futures contract deviates from the physical oil market not only in delivery timing but also in actual delivery. As a result, futures prices are not always close to spot prices.

This misalignment is most evident in Brent crude, the international benchmark. The nearest Brent futures contract is the June contract, but at expiration it is not settled by physical delivery. Instead, it is settled by a price index based on movements in the physical oil market at the time of settlement.

By contrast, the US WTI near-month futures contract is for May and is settled by physical delivery. That difference contributes to Brent futures diverging more from the actual cash price than WTI.

Trading caution and volatility

Sharp price swings have also made traders reluctant to take large positions in the futures market.

Ilia Bouchouev, a manager at Pentathlon Investments, said most professional traders believe the oil market cannot return to normal before the June Brent near-month expiry. Even so, they are not willing to take big bets because of current volatility.

The risk is that rapid price moves can trigger margin calls, forcing traders to post additional funds to maintain positions. Ross added that a trader can correctly identify the market trend but still suffer heavy losses if prices move against expectations in the short term. Bouchouev noted that traders typically assess returns after accounting for risk, and when an asset is highly volatile they reduce exposure.

The options market is also contributing to volatility, amplifying price swings: oil prices can rise more sharply when buying pressure is high and fall more sharply when sentiment reverses.

Large trades and information concerns

The article notes that attributing the volatility solely to individual investors, trading algorithms, or non-professionals may not fully explain it.

Wall Street Journal analysis estimated that more than $760 million of Brent and WTI futures were traded in roughly 15 minutes before posts on President Donald Trump’s Truth Social about delaying strikes on Iranian energy facilities. The analysis raised concerns about trading on information not widely disseminated, which the White House has warned staff to avoid.

Buy-sell balance differs between physical and futures markets

Another reason the financial-market oil price has not risen as much as the physical price is that the futures market’s buy-sell balance is more balanced.

On the physical oil market, buyers outnumber sellers because supply is constrained in the Middle East. In the futures market, however, sellers remain fairly active.

Bouchouev said part of the selling pressure comes from oil producers. Before the conflict erupted, many producers had not locked in high selling prices for future output. When prices rose sharply, they sold futures to lock in prices for oil to be sold later.

Sellers also include traders buying oil from the US Strategic Petroleum Reserve (SPR). The SPR releases are structured like a loan: for each barrel purchased from SPR, a trader must repay about 1.2 barrels in the future. To hedge, traders sell near-month futures and buy longer-dated contracts.

Impact on investment decisions

Whether the spot-futures gap deters oil producers from investing is not certain. Ross said energy companies do reference long-dated futures when planning investments, but in the short term they must consider how much extra profit they can gain from the high spot price.

“For some producers, that could mean allocating more capital to new drilling activity,” Ross said.

The Wall Street Journal also noted that politically, the fact that oil futures—the price that is easy to see and often cited—have not risen strongly is viewed as favorable to the White House. For investors forecasting energy price trends, the article says the more important factor to monitor is what happens in the Hormuz Strait rather than only developments in the financial market.