While Saudi Arabia’s oil minister has called for a cautious approach to raising production due to persistent uncertainty, Brent oil’s futures market suggests otherwise.
According to Reuters market analyst John Kemp, Brent’s front-month contract is up more than $25 per barrel or 65% since successful coronavirus vaccine trials were first announced in early November, indicating a rapid tightening of supply.
Further, Brent’s six-month calendar spread has gone into backwardation of more than $3.70 per barrel. Backwardation is the market condition where a forward or futures contract trades below the expected spot price at contract maturity.
Theoretically, it’s a bullish sign for oil because it means traders no longer have the incentive to store oil and sell it later, according to Barrons.
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