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Oil forward curves signal tight market, supporting price rally -Breaking


© Reuters. FILEPHOTO: The GOI truck can be seen alongside the fuel pumps of a Cepsa Petrol Station in Cuevas Del Becerro. Spain, 29 November 2021. REUTERS/Jon Nazca/

By Bozorgmehr Sharafedin

LONDON, (Reuters) – The threat of geopolitical disruption of oil supplies at a time when already low inventories have sent the barrels price premium for quick delivery soaring. This suggests that the current price rally is still on the horizon.

This “backwardated market structure” means that the current oil price is greater than those of older-dated contracts months. It encourages traders to sell their oil quickly and get rid of it immediately.

On Friday, Brent’s March delivery to September delivery spread was 6.75 months. This is the highest since 2013.

Oil prices at that point were over $100 per barrel. Analysts predict this level could return in the coming year, as more people demand oil.

On Monday, Brent oil prices had already risen to $91 per barrel and were heading towards their largest monthly gain for almost a full year. [O/R]

Ehsan Khaman, head emerging markets research, MUFG Bank, stated, “A confluence if resilient demand, depleting inventories and thinning spare capability, long investors positioning, lingering political tensions, is propelling north at $90 per barrel.”

On Monday, the spread for September delivery and March delivery was $6.88, as opposed to $3 at the beginning of the year.

Analysts at Julius Baer stated that the oil market was caught up in nervousness due to tight storage and disruptions to supply, which fuel fears and boosts market mood.

Russia and West were at odds over Ukraine. This has led to fears of disruption in Europe’s energy supplies.

Markets are also watching the Middle East as United Arab Emirates claimed it intercepted a missile from Yemen’s Houthi. This was after the Gulf State hosted Isaac Herzog, Israel’s first-ever such visit.

Analysts at Julius Baer said that “these frothy dynamics may last over the next weeks” and that oil prices could continue to rise, with the possibility of reaching $100 per barrel for pure profit.

UBS analysts stated that the market will be vulnerable to supply disruptions due to low oil stocks and record demand for 2022.

Refinitiv Eikon data revealed that the six-month spread for European diesel also reached its highest backwardation since March 2008. It was $66.25 per tonne, which is 66.25% more than it had been in March 2008.

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