Market balance

Oil price structures show returns to market equilibrium in H2 2021


LONDON (Reuters) – The oil market is expected to be in balance in the second half of 2021, even as coronavirus shutdowns in Europe and winter storms in the United States caused disruption in March, crude market price structures have shown and petroleum products.

FILE PHOTO: Crude oil storage tanks are seen from above at the Cushing Oil Hub in Cushing, Oklahoma March 24, 2016. REUTERS / Nick Oxford / File Photo

After sharp declines in oil inventories this year, the pace of destocking has slowed in recent weeks, prompting OPEC and its allies, a group known as OPEC +, to lower its forecast for demand growth. for 2021 of 300,000 barrels per day (bpd). The group is now seeing demand increase by 5.6 million bpd.

The Brent month-ahead spread is back in contango, a situation in which the futures price of a commodity is higher than the spot price. This market structure favors the storage of oil.

Brent’s spread for May delivery versus June delivery was as low as minus $ 0.11 on Wednesday, compared to nearly $ 1 in positive territory at the start of the month.

Chart: Brent and WTI forward curves

UBS oil analyst Giovanni Staunovo said March inventory data from the United States, Europe, Japan, Singapore and Fujairah, showing inventory build-up, helped explain why the first month gap had narrowed.

“The sum of all inventories of crude oil and petroleum products in these locations increased in March, a big change from January and February with sharp declines in inventories,” he said.

Construction appeared to be the result of new foreclosure restrictions in Europe and a winter storm that hit parts of the southern United States in February.

Despite weaker than expected demand in recent weeks, analysts said demand is expected to start to exceed supply in the second half of the year.

“These administrative hiccups can delay, but not derail, the recovery. We remain bullish (on) summer crude prices and spreads, ”Energy Aspects said.

Chart: Oil price forecasts

Looking back later in the year, Brent futures continued to lag far behind, with prices for immediate delivery higher than those for shipment in November. The offset, unlike the contango, signals difficult conditions, discouraging storage.

Brent for delivery in May now costs $ 2.45 a barrel more than Brent for November.

Graphic: 6 months of diesel reintegrated into the contango

In Europe, the six-month diesel spread entered an offset in mid-February, but fell back after two weeks. It remains in contango, with a spread of minus $ 9 per tonne.

Despite the current weakness, the spread is still well above the level of minus $ 92 per tonne in April 2020, when many countries entered an initial round of lockdowns and oil sellers struggled to find buyers. with full storage tanks.

Chart: Brent and WTI forward curves

Reporting by Bozorgmehr Sharafedin; Editing by Edmund Blair


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