Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / How the Brent-WTI Spread Explodes During Strait of Hormuz Tensions
Transcript
- Lucas: So it's Monday morning, July 13th, 2026, and if you've glanced at any headline over the weekend, you know the situation in the Strait of Hormuz just escalated dramatically. US and Iranian airstrikes have been exchanged again, and the Kospi in South Korea dropped seven percent overnight. Luna: Right, and that geopolitical fear is showing up in the oil market in a really specific way. Brent crude this morning is at $78.89, up over one percent in the last five days. WTI is at $74.10, up only 0.8 percent. Lucas: That gap — the brent wti spread — is now nearly five dollars. And that is the story I want to drill into today. Because that spread isn't just a number. It is the market's single clearest signal of where geopolitical risk is being priced in right now. Luna: So why does Brent get the premium and not WTI? I mean, both are crude oil. Both are affected by a supply disruption in the Gulf. Lucas: Great question. Brent crude is the benchmark for about two-thirds of the world's globally traded oil, particularly from the North Sea, but also from Africa, the Middle East, and parts of Asia. WTI on the other hand is primarily a US domestic benchmark, priced at Cushing, Oklahoma. So when a threat emerges in the Strait of Hormuz — through which about 20 percent of the world's oil passes — Brent reacts more directly because it reflects the price of seaborne crude that actually has to transit that chokepoint. Luna: So WTI is somewhat insulated because US production is mostly landlocked and doesn't rely on the Strait? Lucas: Exactly. The US is now the world's largest oil producer at over 13 million barrels a day. Most of that either stays in the US or goes to Canada via pipeline. So a disruption in the Gulf raises the global price floor, but WTI doesn't have the same direct exposure. The spread widening is essentially the market saying: 'The rest of the world is at greater risk than the US.' Luna: And we've seen this before. In 2019 during the attacks on Saudi Aramco facilities, the spread blew out to nearly ten dollars at one point. But back then it was a sudden spike. This feels more like a slow boil. Lucas: That's a great observation. In September 2019, the spread spiked from about four dollars to almost ten in a matter of days, then collapsed back as Saudi output came online faster than expected. This time, the escalation has been building for weeks — the headlines about Iran seizing tankers, the US deploying additional naval assets, and now this weekend's airstrikes. The spread has widened from about two dollars in early June to nearly five today. It's a gradual repricing of risk, which suggests traders think the disruption could be protracted. Luna: So it's not just a knee-jerk reaction. It's a structural reassessment. And that might also explain why we're seeing grains move too. Corn is up 7.2 percent in the last five days, wheat up 6.7 percent. Lucas: Yeah, that's a really important connection. When the Strait of Hormuz is disrupted, it's not just oil. A lot of grain from the Black Sea region and fertilizers from the Middle East also transit that waterway. So the same supply-chain fear that's boosting Brent is also pushing up corn and wheat futures. And interestingly, natural gas is crashing — down 9.5 percent in five days — because the US is a major gas exporter now, but LNG from the Gulf Coast can still be affected by tanker availability. It's a complex web. Luna: Let's focus back on oil then. For a listener who wants to track this spread, what should they look for in the coming days? Lucas: I'd watch two things. First, whether the spread continues to widen toward six or seven dollars. That would signal traders expect a prolonged disruption. Second, watch for any diplomatic off-ramp — if talks resume, the spread will compress quickly. But honestly, with the US and Iran trading strikes over the weekend, that doesn't feel imminent. Luna: And just to tie this back to the broader market, the S&P 500 energy sector ETF XLE is up 3.7 percent in five days. So equity investors are also pricing in higher oil prices. But it's not a clean rally — natural gas stocks are getting hammered. Lucas: Right, and that's where the nuance is. If you're just looking at 'oil is up,' you miss the fact that the brent wti spread is the real signal. And I'll tell you, one reason we can talk about this kind of detail without any ad breaks or sponsors is that a small group of listeners supports the show directly. Luna: Yeah, it's a few hundred people who chip in monthly through Buy Me a Coffee at buy me a coffee dot com slash fexingo. That's literally what funds us producing this many episodes a week — over a hundred shows across the Fexingo network. Lucas: So if you've been listening for a while and find yourself citing these episodes in conversations, consider joining them. It's not a subscription — it's more like buying us a coffee because you like what we do. We'll put a link in the show notes, but it's buy me a coffee dot com slash fexingo. Luna: Alright, back to the spread. One more thing I want to bring up — the energy stocks themselves. Exxon is up 1.8 percent over five days, but Chevron is up 4.9 percent and ConocoPhillips is up 5.3 percent. So there's divergence even within the majors. Lucas: That's partly because Chevron and Conoco have more international exposure — they benefit more from Brent's price rise. Exxon is more heavily weighted toward US refining and chemicals, so it's less sensitive to the Brent premium. Again, the spread tells you who wins and who doesn't. Luna: So for our listeners, the takeaway is: don't just look at the headline oil price. Look at the spread between Brent and WTI. That's where the real geopolitical story lives. Lucas: Exactly. And keep an eye on the grain complex too — if the spread keeps widening, corn and wheat could continue their rally. We'll be watching.