An good article about Oil based on OPEC , published on Bloomberg , written by : Grant Smith and Alex Longley
The key sign of OPEC’s success may finally be here.
Since the Organization of Petroleum Exporting Countries embarked on its strategy to clear a global glut, analysts from Goldman Sachs Group Inc. to Bank of America Corp.have said that one critical indicator would show the plan is working: the discount on immediate crude would turn into a premium. That condition known as backwardation signals demand is outpacing supply.
This pattern is becoming increasingly visible in the market for Brent futures, the international crude benchmark. On Wednesday, the front-month Brent contract was more expensive than the second-month contract for a second day, a situation last seen in April 2016, and the trend is spreading to subsequent months along what’s known as the oil futures curve.
Oil Prices :
Oil prices have lost about 6 percent in London this year as production cuts by OPEC and Russia fail to clear the global surplus, stirring speculation the curbs haven’t been deep enough and that rebounding U.S. supplies are canceling their impact. Prices have stabilized above $50 a barrel this month as diminishing U.S. inventories signal OPEC’s actions are finally having an effect.
“The objective of OPEC was to draw down crude-oil stocks and bring the structure into backwardation,” said Olivier Jakob, managing director at consultants Petromatrix GmbH. “We currently observe crude-oil stock draws and a prompt backwardation in Brent. We might not be back to the five-year average in stocks but some rebalancing is occurring.”
October Brent contracts, the front month on the ICE Futures Europe exchange, were at $53.49 a barrel at 2:06 p.m. in London. That’s 18 cents a barrel above the second month, November, which in turn has moved to a premium to the third month for the first time since 2014, when Brent traded for more than $100 a barrel.
Spreads further out in time are also narrowing, with December 2018 versus December 2017 — known to traders as the “red spread” — having shrunk from $2.52 on July 10 to as little as 21 cents on Thursday.
Full Article on Bloomberg: