Middle Eastern benchmark oil prices are "distorted"! Warfare is skewing crude oil pricing, forcing Asian refiners to seek new solutions.

The traditional oil pricing mechanism is facing severe tests. The blockade of the Strait of Hormuz has disrupted the flow of physical crude oil, and in addition, some energy giants have been aggressively buying up supplies—two key Middle East benchmark crude oil prices are now being criticized for having become far removed from reality……

Asian refiners are looking for alternatives to Middle East benchmark crude oil prices, because distortions caused by the war have led to violent price swings; they say this has already departed from the actual conditions of the spot market.

As shortages of crude oil used to assess prices in the region have been caused by the war, the Middle East’s key benchmark crude oil prices have become increasingly unpredictable, and TotalEnergies’ frantic buying has only compounded this turmoil. Oman crude prices once came close to $170 per barrel, prompting Wall Street to worry that the reality of crude oil shortages may be worse than it appears at first glance—then prices fell sharply again.

Each month, Asian refiners have to buy Middle East crude oil worth tens of billions of dollars, using Oman and Dubai benchmarks as reference points. Now they are struggling to deal with a pricing system that many people see as already broken down. Although most of the region’s crude oil production capacity is locked behind the Strait of Hormuz, those benchmarks are still needed to price around 5 million barrels of oil per day that are transported via pipeline from Saudi Arabia and the UAE to areas outside the Gulf region.

Privately, around 20 traders and refinery officials from this world’s largest oil-consuming region say they no longer consider the Middle East’s key price benchmarks reliable, and the depletion of liquidity only worsens the problem. Some say they are concerned that even if the conflict ends, the system may still take time to return to normal.

In a report, analysts at Société Générale, including Michael Haigh, noted: “The aftereffects of the Middle East conflict are no longer confined to damaged infrastructure and disrupted supply chains. It is now distorting the region’s key crude oil benchmarks and putting Asian refiners in a bind.”

Although they acknowledge the damage caused by the war, the main institutions behind these benchmarks and their related futures trading say the price discovery mechanism remains robust.

This has already led spot trades—typically priced against the Dubai crude benchmark—of millions of barrels to switch over to being settled against Brent crude.

Some fuel producers in Asia have also taken unusual steps, asking Saudi Arabia to change its monthly crude oil sales pricing benchmark and instead use Brent futures as the reference.

Buying using Brent as the benchmark may help lower Asian refiners’ crude procurement costs, so this is likely to face resistance from sellers. Under the same conditions, the trading prices of these two Middle East crude oils are both significantly higher than Brent crude.

However, refiners say that what ultimately matters to them is the reliability of the benchmark—not just switching to a lower one.

Trading in Brent crude is largely driven by European supply-and-demand dynamics, and also by hedge funds and other financial investors.

Supply shortages

The Dubai benchmark depends on trading five crude oils from the region, while Oman crude is simply priced as that country’s own crude oil.

But the Dubai crude assessed by S&P Global Platts’ Platts Energy Information had to stop including three of those crude oils in the calculation: Upper Zakum crude, Dubai crude, and Al-Shaheen, because they can no longer access global markets.

As a result, Platts Energy Information restricts eligible crudes to only two types that can be bought outside the Gulf region: the UAE’s Murban crude and Oman crude, named after the country.

Crude from the Persian Gulf being obstructed means some companies with stakes in Middle East crude production choose to ship cargoes directly back to Asia instead of trading them. This further cuts down the available volume of benchmark crude.

Insiders say that some Asian refiners have begun buying crude cargoes linked to Brent futures rather than referencing the Middle East benchmark.

Adding to the tension is that TotalEnergies has bought up the vast majority of Dubai benchmark crude cargoes in the market; traders say this has pushed prices higher. The company did not respond to a request for comment.

Futures take a hit

Platts Energy Information says that although refiners are worried, their pricing remains reliable.

The pricing agency said: “The Platts Dubai benchmark maintains strong liquidity, with bids, offers, and trades from participants of all kinds in the market. Any purchase activity is carried out under public, transparent rules, and Platts Energy Information implements strict oversight and methodology safeguards.”

For the remaining two crudes that qualify for the Dubai benchmark—Murban and Oman—its support base is usually highly liquid futures markets operated by the Intercontinental Exchange Group and the Gulf Commodity Exchange.

Non-structural issues

Data compiled by Bloomberg show that the Gulf Commodity Exchange’s Oman crude contract is sliding toward a month with the lowest average daily trading volume since 2007, and Murban crude’s trading volume has also fallen to a multi-year low.

The Gulf Commodity Exchange said it acknowledges that developments in the region pose short-term challenges to spot liquidity and trading activity, but said these problems are not structural. The agency said its Oman crude contract continues to provide a steady and reliable price discovery mechanism, especially in periods of pressure.

The Intercontinental Exchange Group said that, whether year-on-year or from 2026 to date, open interest in Murban crude futures has increased, but it declined to comment further.

In the most severe scenario, this turmoil could mean that some buyers who choose to convert their contract obligations into physical crude oil may not get what they want, even though there are other settlement methods besides physical delivery.

Faced with huge daily price swings, speculators have also pulled back from some futures contracts in the region.

The broad scale of volatility across the entire oil market limits the risk exposure that traders can deploy across different markets, and since the conflict broke out, Middle East futures have been the most volatile among all commodities.

Bassam Fattouh and Ahmed Mehdi, analysts at the Oxford Institute for Energy Studies, wrote in a report: “The blockade of the Strait of Hormuz is still ongoing, and the massive outflow of liquidity weakens the price discovery function of the entire Middle East pricing system, so prices are likely to see further abnormal volatility.”

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