UK gasping as North Sea oil demand dwindles
Britain’s Brent oil market is flashing signs of weakness again as Asian demand dwindles and American crude swamps Europe, recreating a glut in North Sea stored oil.
It’s happening as speculators have started rebuilding bullish positions. That would normally reduce stores supplies, yet Brent physical oil traders say the opposite is happening.
“We need to see the market going really into deficit for oil prices to rise,” said Giovanni Staunovo, commodity analyst at UBS Group in Zurich. “If this is temporary, it could be weathered, but it needs to be monitored.”
The weakness is particularly visible in so-called time spreads – the price difference between contracts for delivery at different periods. Reflecting a growing surplus that could force traders to seek tankers as temporary floating storage facilities, the Brent June-July spread this week fell to an unusually weak minus 55c/barrel, down from parity just two months earlier. The negative structure is known in the industry as contango.
In the world of contracts for difference (CFD), which allow traders to insure price exposure for their North Sea crude shipments week-by-week, the one-week CFD spread plunged this week to minus $1.84/barrel. A month ago, the comparable CFD traded at just minus 50c/barrel.
Oil traders said the petroleum exporters’ organisation Opec was initially successful in driving oil prices higher and tightening time spreads. But those same spreads forced crude out of storage, flooding an already weaker physical market with supply.
Among the factors behind the weakness, traders cited muted demand in Asia. Crude arrivals from the US are also surging.
Tighter time spreads in February and early March forced some crude out of storage, particularly from onshore tank-farms in the Caribbean and Saldanha Bay, flooding the market. – Bloomberg