11.09.202611:07 Forex Analysis & Reviews: Physical oil is already trading at $120, while paper prices haven't caught up yet

Brent has already broken $110/bbl. WTI for October delivery jumped to $104. Since the start of the year, the benchmark grade has risen more than 75%, although it still sits below the wartime peak of about $126 in April.

Yet the most important number of the day is not in the futures tape. Traders report that physical Brent was being offered at about $120/bbl on Thursday — more than twelve dollars above the futures settlement price. That gap implies the real market shortage is far sharper than the paper market suggests, and fresh buying from Asia is tightening physical availability even further.

A second supply signal of the same magnitude came out of Riyadh. The kingdom warned that oil output plunged last month to levels not seen since 1990 — a thirty?six?year low that takes Saudi production back to pre?Gulf War levels. The decline was driven by Houthi attacks, supported by Tehran, on Saudi facilities; the war has thereby spilled beyond the Strait of Hormuz and struck the region's largest producer directly.

CIBC Private Wealth Group flagged a change in the market's character. "Oil is trading at highs not seen since May as the market re?prices both the escalation and, increasingly, the duration of geopolitical risk. When prices reach levels that create significant short gamma exposure for options dealers, that positioning adds fuel to the upside," the report said.

The result is a rare divergence between two segments of the same market. Physical demand points to a $120 price, while speculative positioning has hit a ceiling. Traders with access to real barrels are the clear winners; those who bought long futures earlier this week risk a rapid price collapse if profit?taking starts, because paper prices can fall faster than the physical balance can adjust.

The most painful effects are showing up in refined products, where the move has already taken on political dimensions. US retail diesel is approaching an unprecedented $6/gal, European gasoil futures are nearing $200/bbl, and US diesel futures on Thursday topped $5/gal for the first time since April 2022.

I expect a corrective pullback in Brent toward $100–103 over the next sessions as traders lock in profits, since positioning appears exhausted. But understand this would likely be a technical retracement rather than a structural reversal: the $12 physical premium and Saudi output at a 36?year low will not disappear. I wouldn't rule out Washington sharply changing tactics around the Strait of Hormuz before the November elections because of diesel at $6/gal — that political risk remains the single meaningful threat to the bulls.

Technically, buyers need to reclaim the near resistance at $104.70 to target $109.30, a level that will be difficult to break through. The next upside target is around $113.40. On the downside, bears will try to take control of the $100 handle; a decisive break below that range would hit bullish positions hard and push oil down toward $96.54 with scope to test $92.