Nearby Brent crude spread hits 2023 high on tight supply

*North Sea Brent oil

London — The spread between the front and second month contract for global oil benchmark Brent has widened to its highest this year, in another strong indicator of a supply deficit fuelled by protracted voluntary cuts from OPEC+.

Brent, which is used to price more than three-quarters of the world’s traded oil, has been rising since late June, as leading producer Saudi Arabia spearheaded output cuts.

The premium of the front month Brent contract to the second-month contract rose to as much as $2.45 a barrel on Thursday, the highest since October 2022. The November contract expires on Friday.

This structure, called backwardation, indicates tightening supply for prompt delivery.

“It is the impact of the supply constraints from Saudi Arabia and Russia. The market believes there is a genuine physical tightness,” Tamas Varga of oil broker PVM said.

Supply curbs implemented by the Organization of the Petroleum Exporting Countries and allies (OPEC+) have played a pivotal role in pushing futures prices to 10-month highs, in particular a combined 1.3 million barrel-per-day (bpd) voluntary cut from Russia and Saudi Arabia until the end of the year.

The Brent spread has been less volatile in recent months, a development that some in the market said reflected the June addition of U.S. WTI Midland to the basket of North Sea crudes that Brent is based on, increasing the supply of crude underpinning the benchmark.

Still, the volume of WTI Midland coming to Europe in September is set to be sharply lower than in the preceding months, which a trade source said might partly explain the jump in the Brent spread.

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Kpler, a provider of flows data, shows the volume of WTI coming to Europe falling to about 710,000 barrels per day in September, down from 1.34 million bpd in July.

*Natalie Grover; editing: Kirsten Donovan – Reuters

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