Brent crude spot prices drop but still at a hefty premium to futures; Here's why

Spot prices for Brent Crude cargos stood at $124.68 on Wednesday, April 8, as per data tracked by S&P Global, a sign that even as the US and Iran engage in talks for a potential end to hostilities, the supply disruptions remain a concerning factor in the energy markets.

Brent's spot price means the rate of oil which is out for delivery and will be delivered in the next 10 to 30 days. Futures contracts for June and beyond indicate only paper trading.

Although the spot prices have declined by as much as $19.75 a barrel since the ceasefire announcement and the subsequent drop in the futures market, they continue to command a hefty premium to the paper trade.

The spot price is still at a $30 per barrel premium compared to the rate at which Brent's futures closed on Wednesday, which was $94.75 a barrel. The higher cargo rates indicate that higher crude prices could stay for long, indicating a tight supply market, despite the ceasefire.

Amrita Sen, founder of Energy Aspects, told CNBC that the spot price for actual cargo reflects the reality on the ground and the high seas. Middle East oil producers have shut down 13 million barrels per day of production because tanker traffic through the Strait of Hormuz has plunged, Sen said.

Most tankers are pointing towards the US to pick up their oil and it could take until June for those ships to be redirected back to the Middle East, Sen said, adding that "it is a complete mess."

Amena Bakr, an expert at Kpler said that it could take as long as five months to restore capacity, contingent on how long this ceasefire lasts.

The CEO of Kuwait Petroleum Corporation said in March it would take as long as four months for the Gulf Arab producers to fully restore their production to pre-war levels. Kuwait was producing about 2.6 million barrels per day prior to the war, the fifth-largest producer in OPEC.

(With Inputs From Agencies)