摩根士丹利-欧洲石油手册：“纸面”原油与实物原油简短入门指南-The Oil ManualEurope'Paper'vs'Physical'Oil-A Short Primer-20260407

Morganstanley

April7,202603:44AMGMT

RESEARCHFouNDATloN

TheOilManual|Europe

'Paper'vs'Physical'Oil-AShort

Primer

DatedBrentreached$141/bbllastweekwhilefront-monthICEBrenttradedat$109/bbl.Thatunprecedentedgaphas

promptedthisshortprimerontheBrentcomplex:not“real”versus“paper”oil,butwherescarcityshowsupfirstandwhypromptbarrelsnowtradeatsuchapremium.

KeyTakeaways

TheBrentcomplexisalinkedsystem:DatedBrent,CashBFOEandICEBrenteachpricedifferentexposuresandwillnotalwaysmovetogether.

ThecurrentblowoutisconcentratedinpromptDatedBrent;thelargeststressisinimmediatebarrelsandnear-termDated-linkedinstruments.

TheCashBFOE-ICEBrentlinkstilllooksorderly.AsmallBrentEFPsuggestsfuturesremaincloselyconnectedtotheforwardcargomarket.

Therealscarcitypremiumsitsinpromptphysicalcrudeandnear-termDatedexposure,asshownbyCFDs,theDateddifferentialandthecurve.

Thisisnotapaper-vs-physicaldisconnect.ThecurrentdislocationshowstheBrentsystemidentifyingwheretheshockismostacuteandimmediate.

Exhibit1:Thebackwardationattheveryfront-i.e.themost'physical'partofthecurve-isunprecedented

MoRGANSTANLEy&Co.INTERNATioNALpLc+MartijnRats,CFA

EquityAnalystandCommoditiesStrategist

Martijn.Rats@

+44207425-6618

CharlotteFirkinsCommoditiesStrategist

Charlotte.Firkins@

+44207425-3866

AmyGower(AmySergeant),CFACommoditiesStrategist

Amy.Gower1@

+44207677-6937

Previousresearch:

•

TheOilManual:IranScenarios(23Feb2026)

•

TheOilManual:IranScenarios-Updated(2Mar

2026)

•

TheOilManual:StraitofHormuz:AirPocket(16

Mar2026)

•

TheOilManual:StraitofHormuz-PhysicalAir

PocketArrivingNow(30Mar2026)

MorganStanleydoesandseekstodobusinesswith

companiescoveredinMorganStanleyResearch.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofMorganStanley

Research.InvestorsshouldconsiderMorganStanley

Researchasonlyasinglefactorinmakingtheirinvestmentdecision.

Foranalystcertificationandotherimportantdisclosures,refertotheDisclosureSection,locatedattheendofthisreport.

+=Analystsemployedbynon-U.S.affiliatesarenotregisteredwithFINRA,maynotbeassociatedpersonsofthememberandmaynotbesubjecttoFINRArestrictionson

communicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount.

2

Morganstanley

RESEARCH

FouNDATloN

TheBrentComplexUnderStress

Whyfront-monthICEBrentcantradeat$109/bwhileDatedBrenttradesat$141/b

Brentcrudeoilpriceshaverisensharplyrecently,butnotallpartsoftheBrentcomplexhavemovedbythesameamount.BeforeEaster,front-monthICEBrentclosedat$109/bblwhilstDatedBrentalreadyreached$141/bbl.Suchdivergenceisunusual-thetypical

spreadbetweenthesetwomarkersisusuallynomorethan+/-$3/bbl;notsomething

mostmarketparticipantsneedtoworrymuchabout.Thecurrentspreadof$32/bblisanall-timehigh,whichhasledtocommentaryabout“financial”versus“physical”oilmarkets,someofwhichismoreconfusingthanhelpful.

Againstthisbackground,welayouthowtheBrentcomplexactuallyworks,whatdifferentpricesrepresentandhowtheycanbeinterpreted.

Exhibit4

showsthisinasingle

snapshot:theBrentmarketisalinkedsystemthatconsistsofthreeparts-apromptphysicalbenchmark(DatedBrent),aforwardcargomarket(cashBFOE)andclearedfuturescontracts(ICEBrentfutures).

Eachlayerhasitsownpricediscovery,whichinturngivesrisetospreadsbetweenthem.Theselayersareconnectedbyasetofseparatelytradedbridgeinstruments:theCFD,DFLandEFPcontracts.

Eachpartofthecomplexcapturesadifferentpricingquestion.Atthemoment,themarketisscramblingforprompt,refinery-usablebarrels,andstressisappearingfirstinthepartofthebenchmarkthatisclosesttotheimmediatephysicalproblem.Thatdoesnotmeanthefuturesmarketisbroken.Itjustmeansthatdifferentpartsofthecomplexarepricing

differentcombinationsofimmediacy,tightnessandexpectedpersistence.Thisnotewalksthroughthatstructureineightsteps.

Exhibit2:ThespreadbetweenDatedBrentandthe1stBrentfutureisusuallysmall...

Exhibit3:...butthisspreadhasblownouttoitswidestsincetheBrentmarketwascreated

WhycanICEBrentbe$109whileDatedBrentis$141?

Iffront-monthICEBrentistradingaround$109/bwhileDatedBrentistradingaround

$141/b,thespreadlookssolargethatitalmostinvitesthewrongconclusion.Ifbotharecalled“Brent,”howcanthegapbesowide?Theansweristhatthetwopricesarerelated,buttheyarenotthesamething.

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RESEARCH

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MoRGANSTANLEyREsEARcH3

DatedBrentisthemarket’sassessmentofwhatapromptphysicalseabornebarrelis

worthinNorthwestEurope.ICEBrent,ontheotherhand,isastandardized,centrally

clearedfuturescontractwhosefinalcashsettlementislinkedtotheforwardBrentcargomarketthroughadefinedexpiryprocess.Thosetwopricesareconnected,buttheydonotmeasurethesameexposureintimeoratthesamepointinthechain.

ThatdistinctionbecomesimportantinashocklikeHormuz.Inourrecentoilwork,the

argumentwasthatthefirstphaseofthedisruptionwasconcentratedeastofSuez,but

thatthestresswasnowspreadingwestasAsiastartedbiddingawayAtlanticBasin

replacementbarrelsandfreightamplifiedthepull(see

TheOilManual:StraitofHormuz-

PhysicalAirPocketArrivingNow(30Mar2026))

.InthatsortofenvironmentthepromptphysicalBrent-linkedbarrelscanmovemuchmoreviolentlythanthemainfinancial

contract.

Sotheissueisnotreallywhetherthemarketistight.Theissueiswhere,insidetheBrentcomplex,thattightnessshouldshowupfirst.

Inourview,therightansweris:firstinDatedBrent,thenintheinstrumentsthatbridgeDatedtotheforwardcargomarket,andonlyafterthatmorefullyinthefutureslayer.

Exhibit4:TheBrentComplex-Howphysicalandpapertradingintertwines

Source:S&PGlobalPlatts

DatedBrent:whatitis,whatitmeasures,andwhyitisthephysicalanchor

DatedBrentisthephysicalanchoroftheBrentcomplex.ItisPlatts’benchmark

assessmentofpromptphysicallightsweetcrudetradingfordeliveryfrom10days

forwardtoonefullmonthahead.Theterm“Dated”referstophysicalcargoesthathavebeenassignedspecificdeliverydatesorloadingdates,ratherthangenericforwardmonthexposure.HistoricallythatmeantNorthSealightsweetcrude.TodayitreflectsthevalueoftheBrentbasket—Brent/NinianBlend,Forties,Oseberg,Ekofisk,TrollandWTI

Midland—withMidlandincorporatedviadeliveredNorthwestEuropepricingnormalizedbacktoanFOBNorthSea-equivalentbasis.

Twothingsareworthemphasizingfromthestart:

4

First,DatedBrentisnotasinglecrudestream.Itisanassessmentframework.Whatit

triestocaptureisthevalueofthemostcompetitiveeligiblebarrelthatcansatisfypromptrefinerydemandinNorthwestEurope.

Second,thebenchmarkisdesignedsothatthemostcompetitiveeligiblebarrelcansetvalueforeachdayintheassessmentwindow.Thatfeatureiscentraltohowthe

benchmarkworks.Itiswhatallowsthecomplextoremainusefulevenasproductionofindividualgradeschangesovertime.

ThatiswhyDatedBrentissosensitivetotherelativeeconomicsofthegradesinthebasket.TheoutrightDatednumberisinfluencedby:

•relativepricingbetweenForties,Oseberg,Ekofisk,TrollandWTIMidland;

•qualityadjustmentsacrossgrades;

•freightanddestinationeconomics;and

•theloading-programdeterminingwhichbarrelsareactuallyavailable.

WTIMidland’sinclusionin2023reinforcedthatlogic.Thelong-runproblemforBrentwasdecliningindigenousNorthSeaproduction.Midlandaddedadeeppoolofexportablelightsweetcrude,butitenteredthebenchmarkinaspecificway:PlattsreflectsMidlandonaCIFRotterdambasisandthennetsitbacktoanFOBNorthSea-equivalentvalueusing

freight,portfeesandtimeadjustments.SoMidlandonlycompetesinsideDatedBrentafterithasbeennormalizedontothesamebasisastheNorthSeagrades.

Thatisparticularlyimportantinthecurrentmarket.IfWTIMidlandCIFRotterdam

becomesmuchmoreexpensivebecauseAsiaisdrawingAtlanticBasinbarrelseast,thenthenormalizedMidlandvalueinsidethebenchmarkrises.Thatmattersinthecurrent

marketbecauseCIFRotterdamMidlandhasrepricedsharply,sothedeliveredeconomicsofAtlanticBasinreplacementbarrelsarenowfeedingdirectlyintotheBrentbenchmark.IftheNorthSeagradesarealsotighteningatthesametime,DatedBrentcanmoveverysharply.

DatedBrentisproducedthroughtheMarketonCloseprocess.Inpractice,thatmeansitisnotjustasimplearithmeticaverageoftransactions.Itisaneditorialassessmentbuilt

frombids,offers,tradesandthestructureofthemarketobservedduringtheassessmentwindow.

WhenpeopleaskwhatDatedBrent“really”is,thebestanswerisprobablythis:itisthebenchmarkpriceofapromptrefinery-relevantseabornebarrelinNorthwestEurope.Inaphysicalshock,thatistherightplacetobegin.

MoRGANSTANLEyREsEARcH5

Exhibit5:HowthecashBFOEandDatedBrentassessmentsfittogether

Source:S&PGlobalPlatts

CashBFOE:theforwarddeliverablecargomarketbeneath

DatedBrent

IfDatedBrentisthepromptphysicalanchor,CashBFOEistheforwarddeliverablecargomarketthatsitsbeneathit.ThisisthepointintheBrentcomplexwherethemarketstartstomovefrompromptphysicalassessmentintoforwardcontractualstructure.

CashBFOErepresentstheforwardmarketforthedeliverableBrentbasket.Ittradesin

both700,000-barrelcargotermsand100,000-barrelpartials.Thosepartialsare

importantbecausetheyarethepracticalmechanismthroughwhichliquidityandphysicaldeliverabilityarelinked.Ifthesamecounterpartiestradeseven100,000-barrelpartialsinthesamedirectionforthesamecontractmonth,thosepositionscanconvergeintoa

700,000-barreldeliverablecargo.Atthesametime,notallpartialpositionsendupas

physicalcargoes;on'fallbackday',partialsthatdonotconvergeintoadeliverable

700,000-barrelcargoaretypicallysettledfinancially,whichmeansCashBFOEhasbothaphysicalandafinancialaspect.

Thatconvergencefeaturestillmatters,becauseitmeansCashBFOEisnotpurelya

financialmarket.Itisaforwardcargomarketwithapathtophysicaldelivery,eventhoughsomepartialexposureisultimatelysettledfinanciallyratherthanthroughnomination.

Thisisalsowherethestructurecanbecomeslessintuitive.CashBFOEismorephysicalthanICEBrent,butlesspromptthanDatedBrent.Itisthemarketforforwarddeliverablecargoexposure,notthemarketfortheimmediatebarrelinsidetheDatedwindow.

Thatdistinctionhelpsexplainalotofthecurrentconfusion.Inaseveresupplyshock,CashBFOEcanandshouldrise.ButitdoesnotnecessarilyhavetomoveasviolentlyasthepromptDatedmarket,becauseitisstillonestepbackfromthemostimmediate

scarcity.Itisaforwardcargomonth,notthenextrefinery-relevantbarrel.

Soitisusefultokeepthedivisionclear:

DatedBrent=promptphysicalvalue

CashBFOE=forwarddeliverablecargovalue

CashBFOEisthebasefromwhichthemarketstartstoinferforwardDatedvalues.Thatis

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Morganstanley

RESEARCH

FoundAtion

whereCFDscomein.

CFDsandforwardDated:howforwardcargopricesturnintoforwardDatedvalues

BrentCFDsarethefirstimportantbridgeinthesystem.ABrentCFDisaweeklyswap

representingthedifferentialbetweenDatedBrentandaforwardmonthCashBFOE

assessmentoverthestatedweeklyperiod.PlattsassesseseightweeksofCFDsahead.

ThefirstweeklycontractisthebalanceofthecurrentworkingweekbetweenMonday

andWednesday;fromThursdayonwardthecurverollstothefollowingfullworkingweek.

Onedetailhereisespeciallyimportant:BrentCFDsareassessedrelativetoCashBFOEM2,notM1.ThatmeanstheweeklyCFDcurvetellsyouhowmuchDatedBrentisworth,overeachweeklyperiod,relativetothesecondCashBFOEmonth.

Thisisthelogicbehindthisshorthand:

CashBFOE+CFDs=ForwardDatedBrent

Thatformulaisasimplification,buteconomicallyitisveryuseful.CashBFOEgivesyoutheforwardcargobase.CFDstranslatethatforwardcargobaseintoaforwardDatedBrentcurve.

Thisisalsooneoftheplaceswherethecurrentmarketbecomeseasiertounderstand.

InashocklikeHormuz,thepromptscarcitypremiumdoesnothavetoappearfirstinCashBFOEM2.Inpractice,itcanshowupfirst,andmuchmoreviolently,inCFDs.Thatis

becauseCFDsaredesignedtoisolatethevalueofpromptnessrelativetotheforwardcargomarket.

Asimpleexamplehelps.

AtthemomentCashBFOEM2is$100/b.TheWeek1CFDis+$39/b,sothemarketiseffectivelysayingthatDatedBrentforthatWeek1periodisaround$139/b.ThatCFDvalueisextreme-see

Exhibit6

-butitshowsthescrambleforimmediatereplacementbarrelsratherthanforgenericforwardcargoexposure.

CFDsareoftenwherethemarketstartstopricethepremiumforpromptness.Thatiswhy,inthecurrentenvironment,CFDscanmovedramaticallyevenwhenCashBFOEM2movesbymuchless.TheweeklypromptpremiumisexactlywhattheCFDmarketexiststo

express.

Morganstanley

RESEARCH

FouNDATloN

MoRGANSTANLEyREsEARcH7

Exhibit7:TheCFDshavetheirown8-weekforwardcurvewhichisdeeply

backwardated

Exhibit6:TheBrentCFDshaveincreasedtohistoricallyhighlevels

Exhibit8:TheDatedBrentDifferential

isusuallyaroundzerobuthasalsoblownoutrecently

Dateddifferentialandstrip:howpromptphysicalrichness

showsup

ThenextstepistheinternaldecompositionofDatedBrentitself.PlattsframestheoutrightDatedBrentassessmentas:

NorthSeaDatedStrip+DatedBrentDifferential=DatedBrentAssessment

Thispointtendstogetlessattentionthanitdeserves.

TheNorthSeaDatedStripistheaveragevalueoftherelevantforwardDatedBrentcurveacrosstheNorthSeaassessmentwindow,whichtypicallyrunsfrom10daysforwardtotheequivalentdateinthefollowingmonth.Soitisnotjustoneforwardpoint.Itisastripaverageovertherelevantdaterange.

TheDatedBrentDifferentialisthepremiumordiscountofpromptphysicalBFOEcargoesversusthatstrip.Thisiswhereimmediatephysicalrichnesscanoftenshowupmost

clearly.

IfthestripisalreadyhighbecausetheforwardDatedcurveisbackwardated,butthe

barrelsactuallyloadinginsidetheDatedwindowaretighterstill,theDateddifferentialrises.ThatpushesoutrightDatedBrentabovethestrip.Thatisbroadlywhatonewouldexpectinthepresentmarket.

IfAtlanticBasinbarrelsarebeingbidawaybyAsia,iffreightisbadlydislocated,ifWTIMidlandCIFRotterdamissurging,andifJohanSverdrupandotherNorthSeagradesaretradingatextremepremiums,thenthephysicalcargoesinsidetheDatedwindowcanbecomemuchricherthanthestripsittingbeneaththem.Thatrichnessshowsupasa

wideningDateddifferential.

Thisalsohelpsexplainwhythebenchmarkcanlookcounter-intuitivetoinvestorsfocusedmainlyonthefuturesscreen.TheoutrightDatedpriceisnotsimplytheflatfuturespriceplusanarbitrarybasis.Itisthecombinationof:

1.theforwardDatedstripimpliedbyCashBFOEandCFDs;and

2.thephysicalpremiumofactualpromptcargoesversusthatstrip.

Morganstanley

RESEARCH

FouNDATloN

8

Whenbothofthosepiecesarestrong,DatedBrentcanmovetolevelsthatlookverywide

relativetothefuturescontract.

Thatdoesnotmeananythingisbroken.Itmorelikelymeansthepromptphysicalpartofthebenchmarkisrespondingfirst.

ICEBrentfutures:whatthecontractis,howclearingworks,andwhathappensatexpiry

ICEBrentisthemostvisiblepartofthecomplex,butitisnotthephysicalanchor.Itistheliquidfinanciallayer.

TheICEBrentfuturescontractisstandardized,centrallyclearedandmargineddaily

throughtheclearinghouse.Thatmeansparticipantsdonotexchangethefullnotional

valueofthecontractupfront.Instead,theypostmarginandthensettlegainsandlossesthroughdailyvariationmarginaspricesmove.

ThatstructureisoneofthemainreasonsICEBrentissoliquidandsowidelyusedby

investors,producers,refinersandmacrotraders.Itiseasiertotrade,easiertofinanceandeasiertoclearthancargoexposure.

ThelinkbetweenICEBrentandthephysical-forwardcargomarketisembeddedinits

expirymechanism.However,thatismoreinvolvedthanmanycasualusersassume.Openfuturespositionsarenotgenerallyturnedintophysicalcargodeliveryatexpiry.Instead,thecontractiscash-settledtothelCEBrentlndex.ThatindexisdesignedtoconnectthefuturescontracttotheprevailingvalueoftheforwardBrentcargomarketonexpiryday.

Inbroadterms,theICEBrentIndexusesfiveintradaysamplingpoints.Ateachpointitcombines:

1.thesecond-monthICEBrentfuturesminutemarker;

2.full-cargosecond-monthEFPtrades;

3.first/second-monthcashspreadtradesinReferenceQualityCrudeOil;

4.independentmarketassessmentsofthosecomponents;and

5.anyqualifyingfirst-monthfullcargotradesclosetothesamplepoint.

Soevenatexpirythefuturescontractdoesnotsettleto“spotBrent”inanysimplesense.Instead,theEFP-discussedinthenextsection-providesamechanismthatlinksthe

futureslayerbacktotheforwardcargomarket.

Thathelpsexplainwhyfront-monthICEBrentcanlagaviolentmoveinpromptphysicalBrent.Thefuturescontractisliquid,forward-lookingandfinanciallycleared,butits

settlementmechanismstillreferencesthecargomarketratherthantheimmediateDatedbarrel.

ICEBrentfuturesareultimatelytiedbacktothephysicalmarket,butthattieisenforcedatthemarginratherthanacrosstotaltradingvolume.PaperturnoverisvastlylargerthantheunderlyingflowofBrent-complexbarrels,whilethebridgebacktophysicaloilrunsthroughamuchsmallerEFP,cash-spreadandcargomarket.Innormalconditionsthatisenoughtokeepthesystemaligned.Inperiodsofacutepromptscarcity,however,DatedBrentandrelatedphysicalindicatorscanmovemoreviolentlythanthefuturescontract,sopass-throughfromphysicaltightnessintoscreenpricesmaybeincompleteordelayed.

Morganstanley

RESEARCH

FouNDATloN

MoRGANSTANLEyREsEARcH9

EFPandDFL:howfuturesconnectbacktoCashBFOEand

Dated

Theremainingpiecesaretheinstrumentsthatconnectthelayers.

Exhibit9:TheBrentEFPbriefly

increasedbutisalreadybackwithinitsnormalrange

EFP:thebridgebetweenICEBrentfuturesandCashBFOE

TheBrentEFP,orExchangeofFuturesforPhysical,istheinstrumentthatmovesexposurebetweenthefuturescontractandtheforwardcashcargomarket.

Economically,theEFPisthebasisbetweenICEBrentfuturesandCashBFOE.IfaparticipantwantstomovefromclearedfuturesexposureintoforwardBrentcargoexposure,orviceversa,theEFPisthebridge.

ThatmakesEFPsimportantintwoways:

First,theyarepartoftheexpiryplumbing.TheICEBrentIndexexplicitlyusessecond-monthEFPtradesasoneoftheinputslinkingfuturestothecashmarketonexpiryday.

Second,theyareanimportantlivemarketsignal.IfEFPswidenmaterially,thatsuggestsforwardcargoexposureisbecomingricherrelativetofutures.Inotherwords,someofthestressismovingbeyondtheclearedfinancialmarketandintotheforwarddeliverable

cargolayer.

DFL:thebridgebetweenDatedBrentandthefutures-linkedfrontline

TheBrentDFL,orDated-to-Frontlineswap,istheinstrumentusedtohedgeandpricethespreadbetweenDatedBrentandthefrontlineBrentderivativelayer.

Inpractice,themarketoftenspeaksaboutDFLsasiftheyweresimply“Datedminusfutures.”Thatshorthandisdirectionallyuseful,butitisslightlytooloose.More

accurately,DFLsarethemaintradablebridgebetweenpromptDatedBrentandthefutures-linkedfrontlinestructure.

ThatdistinctionmattersbecauseithelpsexplainwhyDFLsareoftenthecleanestlivesignalofhowrichpromptphysicalcrudeisrelativetothefinanciallayer.

IfDFLsblowout,themarketiseffectivelysayingthatDatedBrentisbecomingmuchmoreexpensivethanthefutures-linkedfrontline.Inapromptphysicalscramble,thatisexactlywhatonewouldexpect.

Sothedivisionoflabourisroughlythis:

•CFDstellyouhowDatedrelatestoCashBFOEM2overweeklyperiods

•DFLstellyouhowDatedrelatestothefutures-linkedfrontline

•EFPstellyouhowCashBFOErelatestoICEBrentfutures

Takentogether,thoseinstrumentsarewhatallowstresstomovefrompromptphysicalbarrelsintotheforwardcargomarketandthenintotheclearedfuturesmarket.

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RESEARCH

FouNDATloN

10

Exhibit10:SimilartoCFDs,theDFLhasalsoblownout….

Exhibit

11:...at

itstructureisalsoindeepbackwardation

Interpretation:whatthecurrentdislocationisactuallysaying

Thecurrentdislocationisnotbestunderstoodasablanketseparationbetween“physical”and“financial”oil.Themoreprecisereadingisthatthestressisconcentratedinthe

promptDatedlayeroftheBrentcomplex,whilethebridgebetweentheforwardcargomarketandICEBrentfuturesremainsrelativelyorderly.

Theclearestevidenceisinthecurveitself-see

Exhibit12

.DatedBrentiscurrently

assessedat$141.4/b,whiletheNorthSeaDatedStripis$127.4/bandtheDateddifferentialis$13.9/b.ThatmeansalargepartofthemoveishappeninginsideDatedBrentitself:

promptphysicalcargoesloadingintheassessmentwindowaretradingataverylargepremiumtotheforwardDatedstripbeneaththem.

AsecondpartofthemovesitsbetweentheforwardDatedstripandtheforwardcargo/futureslayer.ThesyntheticforwardDatedcurvedeclinesfrom$138.9/binWeek1to

$109.7/bbyWeek8,whileJuneCashBFOEis$110.9/bandJuneICEBrentis$109.6/b.Inotherwords,themarketispricinganextremepremiumforimmediatebarrelsandnear-termdatedexposure,butamuchsmallerpremiumfurtherforward.

Thatdistinctionmatters.Iftheproblemwereabroadbreakdownbetweenthephysicalandfinanciallayers,onewouldexpectCashBFOEandICEBrenttobebadlydislocatedaswell.Instead,theJuneBrentEFPisonly$0.3/b,suggestingthatthefuturescontract

remainscloselytiedtotheforwardcargomarket.Therealblowoutisfurtherforwardinthechain:betweenpromptDatedBrentandthedeeperforwardstructure.

AnotherwaytoframeitisthattheheadlinegapbetweenDatedBrentandfront-monthICEBrentcanbesplitintotwoparts.

•Onepartisthe$13.9/bDateddifferential,whichmeasureshowrichactualpromptphysicalcargoesarerelativetothestripbeneaththem.

•Theotherpartisthe$17.4/bgapbetweentheNorthSeaDatedStripat$127.4/bandtheJunefutures/cashcargolayeraround$110/b.

Sothecurrentmarketisnotjustpricinghigheroil.Itissimultaneouslypricingaverysteepfront-endbackwardationinforwardDatedBrentandanadditionalpremiumforthe

barrelsactuallyloadinginsidetheDatedwindow.

Thatreadingalsofitsthebroadermarketlogicoftheshock.TheHormuzdisruptionbeganasaneast-of-Suez,prompt,medium-soursupplyshock.AtfirstthatmeantDubai-linked

MoRGANSTANLEyREsEARcH11

marketsreactedmoredirectlythanBrent.ButonceAsiabeganbiddingawayAtlantic

Basinreplacementbarrels,stressstartedtomigrateintotheBrentsystem.Thatmigrationisnowvisibleintheplaceswhereonewouldexpectittoshowup:inWTIMidlandCIF

Rotterdam,inNorthSeaphysicaldifferentials,inBrentCFDsandintheDateddifferentialitself.

TheweeklyforwardDatedcurvehelpssharpenthatpoint.Itdoesnotstayhighinaflat,uniformway.Itfallsfrom$138.9/binWeek1to$134.1/binWeek2,$129.0/binWeek3and$123.3/binWeek4beforemovingdowntowardthelow$110sbylateMay.ThatisnottheprofileofamarketrepricingtheentireBrentcomplexequally.Itistheprofileofamarketpayinganexceptionalpremiumforsecure,refinery-usableAtlanticBasinbarrels

availablenow,whileassumingthatsomeofthatscarcitypremiumwilldecayoverthefollowingseveralweeks.

Sothemostusefulconclusionisnotthatonemarketis“real”andtheotheris“fake.”ItisthatdifferentpartsoftheBrentcomplexarecarryingdifferentpartsofthesignal.TheCashBFOE-ICEBrentlinkisstillfunctioninginanorderlyway.Theblowoutis

concentratedinpromptDatedBrentandthenear-terminstrumentsthatfeedintoit.

Exhibit12:Combiningthe'physical'withthe'paper'layersshowsaBrentforwardcurvethatisextraordinarilybackwardated

:

Morganstanley