Oil Market Discrepancy and Middle East Tensions (with Abeer Abu Omar)

5/5/2026 11:51:26 PM	medium term down	20 days later	-1.25%	+1.25%

Have we seen palpable signs of demand destruction over the past four months of the Middle East war?

Abeer Abu Omar

Sara Vakhshouri

In the past 100 days, we haven't had much demand destruction—demand has been resilient. China and Japan reduced imports but used their own inventories. As the crisis prolongs, demand is starting to adjust and decline.

For LNG, Asian countries have burned more coal and rerouted cargoes to Europe.

Would policy responses like the EU potentially removing sanctions on Russian oil have enough momentum to compensate for lost supply?

Abeer Abu Omar

Sara Vakhshouri

Countries have subsidized fuel or reduced taxation to maintain low prices. There's a huge gap between financial markets pricing peace and physical markets adapting to war. As we hit summer, supply buffers from inventories are getting tighter, leading to a tight market regardless of financial market pricing.

The demand reduction so far is curtailment, not structural decrease—demand will return if supply resumes.

What is the discrepancy between paper oil at $97 and physical reality?

Abeer Abu Omar

Sara Vakhshouri

Physical barrels are about $50 higher than Brent at $97 due to freight, insurance, and regional access costs. Financial markets are not capable of showing physical market realities when trade volumes decrease. Most deal discussions are about extending ceasefires, not long-term peace, which won't solve flow issues.

The paper market is designed to reflect physical reality, but if there's no trade or accessibility in the physical market, the reference for pricing is lost.

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