Cautious oil market bulls are stirring, sensing higher prices for future months after a first whisper that the glut may be set to slowly shrink.
The International Energy Agency yesterday said lower prices will force non-Opec producers including the US to cut output by the steepest rate in over 20 years next year.
This helped push the difference in price between oil for delivery in October and for delivery in one year to its widest in six months on Monday.
“People are getting ready to press the ‘buy’ button, but we are probably just still a couple of months too early,” Saxo Bank commodities strategist Ole Hansen said.
The out-performance of longer-dated crude prices seems to be more about a pick-up in the future prospects for the market, than gloom over the immediate outlook.
“Over the past week, most of the movement has happened has been a positive move at the back end of the curve, so a story like the (IEA) one on Friday does obviously help,” Mr Hansen said.
The ‘contango’ (discount) between immediate delivery of oil and delivery in a year is around half of what it was at the height of the financial crisis in 2008, but is well above long-term averages.
In the last 10 years, the one-12 months contango has averaged $1.07 a barrel. Over the last 20 years, this gap has held on average at $0.43 a barrel meaning it was in the opposite market structure known as ‘backwardation’.
Benchmark Brent crude futures have halved in price in the last 12 months to below $48 a barrel.
In part, the steepening of the curve this year has been the product of fierce pressure on near-term Brent crude futures, which fell in late August below $43 a barrel to their lowest since early 2009.
Since then however, the price has risen by 5%, fund managers have steadily upped their bullish bets on crude oil, completing their largest three-week increase in five years last week.
BNP Paribas global head of commodity strategy Harry Tchilinguirian told the Reuters Global Oil Forum on Monday that he and his team, who are forecasting an average Brent price of $62 in 2016, did not buy the “lower for longer” story for oil.
“We think we are near the floor, but nothing precludes that we temporarily move lower,” he said.
“Now, a couple of data points does not make a trend, but rig count for oil is down for a second week.
"Once this trend becomes entrenched in the high-frequency weekly data, the market will regain its bullish footing,” he said.
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