Oil's price structure for Brent and U.S. crude has caused storage to be drawn down, signaling a recovery in global markets and tighter supplies as major producers cut output to compensate for demand loss due to the coronavirus pandemic.
Brent on June 18 moved into backwardation, where oil for immediate delivery costs more than supply later. The premium at which Brent crude futures for August delivery are trading above September were as high as 15 cents on June 19.
Short-term Brent swaps in the North Sea market, contracts for differences, have also moved into backwardation, suggesting a stronger physical market.
That has encouraged storage to be drawn down.
"The floating storage, in particular in the [U.S.] Gulf Coast is already decreasing as buyers are opting for taking out the floating tankers rather than engaging into a new booking," said Rystad Energy's senior oil markets analyst Paola Rodriguez Masiu.
She added that the extension of output cuts by OPEC+ helped the market to find its balance after months.
OPEC and allies, known as OPEC+, have been cutting output since May by a record 9.7 million bbl/d, 10% of global supply.
The new oil price structure marks a turnaround from earlier when the coronavirus outbreak had pushed oil prices into the opposite structure, when prompt prices fell below forward prices, known as contango.
On June 19, the six-month contango on Brent futures was at around -25 cents, its shallowest since early March before a supply cut deal between OPEC and its allies led by Russia collapsed, dragging crude prices to record lows.
The drop in U.S. oil production also helped the recovery of the markets. U.S. crude output fell last week to 10.5 million bbl/d, the lowest since March 2018, the Energy Information Administration said.
Markets have also found balance as fuel demand across Europe staged a gradual recovery after hitting record lows at the height of coronavirus lockdown measures in April.
"June will show some further improvement in demand for driving fuel versus May, but after that, the pace of demand recovery will slow down," said Petromatrix.
The six-month contango for diesel narrowed significantly in recent weeks, from -$93 in late April to -$19 on June 19.
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