Brent oil spot price above $120 as ceasefire fails to solve deep disruption

The spot price for cargos of Brent crude oil came in at $124.68 per barrel on Wednesday in a sign that the Iran ceasefire agreement is unlikely resolve the deep supply disruption triggered by the five-week war.

The spot price governs Brent oil for delivery in the next 10 to 30 days, in contrast to futures contracts for delivery in June and beyond.

The spot price has fallen $19.75 after the two-week ceasefire agreement between the U.S. and Iran, according to S&P Global, which tracks the data.

But it is still nearly $30 above the Brent June futures contract that closed at $94.75 on Wednesday. The higher price for actual cargo demonstrates that oil supplies will remain tight for some time even if the ceasefire agreement holds.

The spot price for actual cargo reflects the reality on the ground and the high seas, said Amrita Sen, founder of Energy Aspects. Middle East oil producers have shut down 13 million barrels per day of production because tanker traffic through the Strait of Hormuz has plunged, Sen said.

Most tankers are now pointing toward the U.S. to pick up oil there, Sen said. It could take until June to redirect those ships back to the Middle East, she said.

“It’s a complete mess,” Sen told CNBC’s “The Exchange” on Wednesday.

Hundreds of millions of barrels of oil have been taken off the market due to the war, said Amena Bakr, an expert on the Middle East and OPEC at Kpler. It could take as long as five months to restore capacity, Bakr told CNBC.

“It is contingent on how long this ceasefire lasts” and whether it leads to a peace agreement, Bakr told CNBC’s “Morning Call” on Wednesday.

The CEO of Kuwait Petroleum Corporation said in March it would take as long as four months for the Gulf Arab producers to fully restore their production to pre-war levels. Kuwait was producing about 2.6 million barrels per day prior to the war, the fifth-largest producer in OPEC.

“We have resilient reservoirs that bring out quite a bit of production immediately — within a few days,” Sheikh Nawaf al-Sabah told the oil industry at the CERAWeek by S&P Global energy conference in Houston on March 24. “The bulk of it will come within a few weeks, and then the full production will come within three or four months.”