Prices for heavy crude produced in the Americas surged to multi-year highs on Wednesday, as the US-Israeli attacks on Iran stymied exports of similar oil produced in the Middle East, and prices also jumped for heavier grades in Europe and Africa.
Benchmark crude oil prices have surged since the initial attacks last week, with Brent crude at its highest levels since January 2025.
Iran has threatened to fire on any vessel sailing through the shipping lanes of the Strait of Hormuz off its southern coast in retaliation for the attacks. That has effectively closed the strait, cutting off around a fifth of global oil supplies and leaving hundreds of vessels anchored nearby.
Refiners are scrambling to deal with higher costs that could translate to higher consumer prices for gasoline and diesel fuel, and with Middle Eastern supply curtailed, the price of heavy oil produced in the US, Canada and Venezuela has risen.
Prices of Mars sour crude, the flagship crude produced in the US Gulf of Mexico and favored by refiners globally, traded at a $5.50 premium to US benchmark West Texas Intermediate (WTI) crude on Wednesday, brokers said. That was the highest since April 2020, and up $1.75 from Tuesday.
"Buyers seem to be rushing to buy up these barrels as they expect the Middle East conflict to drag on longer," said Rohit Rathod, a senior analyst with ship tracking firm Vortexa.
That will eat into refinery margins, even for plants not directly affected by the disruption. Many US refineries are configured to run heavier crude, and would use it as they boost diesel production in response to rising prices for the fuel.
Prices for some of the heavier crudes produced in Europe and Africa have also jumped, traders said. Gabonese grade Mandji was offered at a $1 a barrel premium to physical benchmark dated Brent, a trader said, up from a steep discount before the conflict.
Europe's Johan Sverdrup was bid at dated Brent plus 90 cents on Wednesday, a trader said, up sharply from the last known deal at dated Brent minus $3.25 on February 26.
Iraq, OPEC's second-largest producer, on Tuesday said it may be forced to cut production by more than three million barrels per day in a few days if oil tankers cannot move freely to loading points in the Persian Gulf, according to two Iraqi oil officials. Refiners in India, South Korea and the US buy Iraq's Basrah oil and would have to replace it with similar quality crude from elsewhere.
Heavy Louisiana Sweet, another crude produced off the US coast, closed at a premium of $5.25 on Tuesday, highest since 2020, and $1 higher than Light Louisiana Sweet. That signals higher demand for heavier grades, which typically trade at a discount to lighter grades.
The discount on heavy Canadian oil to WTI has tightened by $1.25 a barrel since last Friday, as buyers in India and China squeezed by the Middle East supply shortage are likely to turn in part to Canada, one of the world's largest producers of heavy crude, analysts said. The Trans Mountain pipeline, which ships heavy crude from Alberta's oil sands to the British Columbia coast for export overseas, is currently not full.
"We could see significant uptake of the remaining spot capacity on the Trans Mountain pipeline within weeks to a month if the Iran situation continues," said Patrick O'Rourke of ATB Cormark Capital Markets.
Venezuelan heavy crude was also being offered at higher prices, a source said.
In the US, where gasoline prices are a key political pressure point, the cost of the motor fuel jumped above $3 per gallon for the first time since November, a major risk for US President Donald Trump and his fellow Republicans as they head into midterm elections in November, though prices were regularly significantly higher under the Biden regime.
Diesel prices closed at $3.19 a gallon on Tuesday, the highest since October 2023, and touched a high of $3.45 a gallon during Wednesday's session. Diesel is sensitive to the worsening Middle East conflict because the region is a major supplier of the fuel.
Those inventories have dropped sharply after a period of high demand stemming from the harsh US winter, analysts and traders said.
Prices for light sweet barrels should start to rise soon due to the shortfall, said Neil Crosby, Sparta Commodities analyst. Already, key grades were seeing premiums rise, such as Brazilian light crude to China, where offers were scarce and the premium above ICE Brent surged to $13 to $14 per barrel, compared with a premium of $2 to $3 before the conflict, two traders said.
US WTI was trading at a discount of as much as $8.75 a barrel on Wednesday to globally traded Brent, the most in more than three years, in the expectation that U.S. supply is less likely to be affected by global developments. Japan's second-largest refiner Idemitsu Kosan on Monday bought two million barrels of West Texas Intermediate crude from SK Energy for June arrival, traders said.
(Reporting by Arathy Somasekhar and Georgina McCartney in Houston, and Amanda Stephenson in Calgary. Editing by Liz Hampton and Mark Potter)
