By Bloomberg News - August 29, 2018
The structure of the futures market
for global benchmark Brent crude is signaling rising concern over disruptions
in Iranian exports due to US sanctions on the Organization of Petroleum
Exporting Countries (Opec) producer.
Futures in London for settlement in
November—when the US measures will go into effect—are trading higher than
contracts for later months. That market structure, known as backwardation, is
seen reflecting fears of a supply crunch. Meanwhile, Brent’s premium to New
York prices has risen as US crude is weighed down by pipeline bottlenecks and
speculation that President Donald J. Trump will pursue efforts to lower fuel
costs.
“While supply risks we see from Opec
including Iran are lifting Brent prices, Trump’s constantly restricting WTI
from rising higher, causing the WTI-Brent spread to widen,” Kim Kwangrae, a
commodities analyst at Samsung Futures Inc., said by phone. “In the long term,
both WTI and Brent are in backwardation mainly on concerns over curtailed
Iranian output due to US sanctions.”
Most of Iran’s customers are already
facing difficulties in buying supplies from the Persian Gulf state even before
sanctions on its crude exports are imposed on November 4. Uncertainty is rising
over whether other members of the Opec will be able to pump more to fill any
supply gap. Meanwhile, the US hasn’t said if it’ll give waivers to buyers who
otherwise risk being cut off from the American financial system.
As longer-term futures indicate
supply risks, near-term prices are fluctuating on changes in US inventories.
The October contract in New York was little changed on Wednesday following an
industry report that signaled a surprise gain in stockpiles, after prices
flipped between gains and losses over the past two sessions. Meanwhile, Brent
futures for the same month are in contango.
Brent for November settlement was at
$76.02 a barrel at 7:57 a.m. London time, 10 cents more than December crude.
That’s the widest backwardation since early-July between the second- and
third-month contracts. October Brent, which expires on August 31, was little
changed at $75.83 a barrel on the London-based ICE Futures Europe exchange.
West Texas Intermediate (WTI) crude
for October delivery traded 15 cents lower at $68.38 a barrel on the New York
Mercantile Exchange. The contract fell 34 cents, or 0.5 percent, to $68.53 on
Tuesday. Total volume traded was about 56 percent below the 100-day average.
The US crude benchmark’s discount to Brent was at $7.33 a barrel after closing
at $7.42 on Tuesday, the biggest in more than two months.
“Trump’s release of strategic oil
reserves as well as his rights to discharge as much as 30 million barrels of
crude in an emergency are further keeping oil from climbing higher,” Samsung
Futures’s Kim said.
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