By Jinjoo Lee

Which oil price is the right one? These days, the price of a physical barrel of oil is significantly higher than what oil prices in financial markets suggest.

Dated Brent, which reflects oil for actual physical delivery 10 to 30 days out, has risen to $132.74 a barrel as of Monday. Brent futures for the nearest delivery settled at $99.36 a barrel. The gap between the two prices is historic, according to Gary Ross, chief executive officer of Black Gold Investors. Never has the market seen an oil-market disruption of this size, or such uncertainty over what might happen next, he added.

One explanation is the severe physical shortage in oil markets. This tends to amplify the spread between spot and futures prices. Front-month futures are actually quite disconnected from the physical barrels -- both in timing and physical reality, Dave Ernsberger, president of S&P Global Energy, said on the sidelines of the CERAWeek conference last month. This means the futures price doesn't necessarily converge with the spot price, according to Ernsberger.

The disconnect is especially stark for Brent, the international benchmark. The current front-month Brent futures are for June delivery, which is two months out. Brent futures don't actually convert to physical delivery. They settle into an index price that is derived from the physical market at that time. The front-month U.S. benchmark crude, the WTI, is for May and settles physically.

Secondly, oil price moves are so volatile that traders aren't willing to place big bets in futures markets. Hedge funds and algorithmic traders have fairly modest positions in oil futures, said Ilia Bouchouev, managing partner of Pentathlon Investments. Professional traders largely don't expect the oil market to normalize by June, when the front-month Brent futures expire, Bouchouev said. But traders who hold that view aren't willing to place big bets on it because the market is so volatile.

The risk is that big price swings can trigger margin calls. As Ross put it: "You can be dead right, but you could also be dead if [the trade] goes badly." Traders are measured on a risk-adjusted basis, so when volatility on an asset is too high, they tend to allocate less, Bouchouev said. Fast-growing options markets exaggerate the price moves in both directions.

And just who is causing the severe price swings? It may be easy to point the finger at individual investors, computer algorithms or generalists, but that doesn't seem to be a satisfactory explanation. Some huge oil-futures trades were suspiciously well timed relative to President Trump's social-media posts. For example, more than $760 million worth of Brent and WTI futures changed hands about 15 minutes before Trump announced in a Truth Social post that he was postponing strikes on Iranian plants thanks to "productive" talks with Iran. The White House has warned staff against insider trading. The last thing traders want is to be caught on the wrong side of insider bets.

A third reason: Financial oil markets simply have a more balanced mix of buyers and sellers right now. In the physical market, there are clearly more buyers desperate for oil than sellers, whose supply is stuck in the Middle East.

Sellers in the futures market include oil producers, who were relatively underhedged before the conflict, locking in future prices, according to Bouchouev. They also include traders buying oil from the U.S. Strategic Petroleum Reserve. The SPR release is structured as a loan: For every barrel that a trader buys from the SPR, the trader must return about 1.2 barrels in the future. To hedge this, traders are selling oil futures for earlier delivery and buying futures for later delivery.

Will the disconnect between spot prices and futures prices cause oil producers to underinvest? Not necessarily. Energy companies do look at further-out oil futures prices for planning. But meanwhile, they will have to decide what to do with the windfall of cash from high spot prices, Ross noted. For some producers, that could mean allocating more cash to drilling.

Politically, a muted oil futures price -- which is highly visible and frequently cited -- works in the White House's favor. But for investors looking for clues on what energy prices will look like in the future, it is better to keep a close eye on what is actually happening in the Strait of Hormuz, not financial markets.

Write to Jinjoo Lee at jinjoo.lee@wsj.com

(END) Dow Jones Newswires

April 14, 2026 05:30 ET (09:30 GMT)

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