Oil rally pauses as curve shows one of the tightest markets ever

Oil fell Thursday even as the futures curve continued to signal one of the strongest periods the market has ever seen amid ongoing price volatility.

Oil fell Thursday even as the futures curve continued to signal one of the strongest periods the market has ever seen amid ongoing price volatility. 

Futures in New York closed 2 per cent lower. Geopolitical risks, including the potential return of Iranian barrels and political tension around Ukraine, have kept prices swinging throughout the week. That volatility has rippled across the market’s forward structure.  

Nearby contracts are commanding enormous premiums over those further out, indicating that traders are clamoring for barrels right now. Some futures spreads have reached their strongest levels in data going back to 2007.

Nowhere is the move clearer than in the world’s most important physical oil price -- Dated Brent -- which on Wednesday topped US$100 for the first time since 2014. The market for real barrels in the North Sea has boomed in recent weeks, with differentials for some physical cargoes hitting the highest on record as demand from European refiners surges. 

“The strength in Dated Brent clearly suggests refiners are out procuring short-haul barrels,” Energy Aspects analysts including Amrita Sen wrote in a note to clients this week. “The only way to balance this market over the medium term remains high oil prices to slow demand growth.”