The price of prompt Brent crude futures on Wednesday rose to a near five-month high over the price for oil six months later due to tightening supply and expectations for a revival in Chinese demand.

The premium of the first-month Brent contract to the six-month contract widened to US$3.05 a barrel on Wednesday, the most since late August. The premium has risen by more than 50 per cent so far this year.

Prompt US oil futures also rose relative to those in future months. The premium of first-month WTI futures to the six-month contract rose to US$3.34 a barrel on Wednesday, the highest since October.

Oil output from the Organization of the Petroleum Exporting Countries fell in December, partly due to losses in Iran, a Reuters survey showed. Concern of tighter supply from Iran and Russia due to sanctions is also boosting prices, analysts said.

“It looks as though sanctions might be working and the combination of declining Russian and Iranian exports supports the structure,” said Tamas Varga of oil broker PVM.

Investors are also hoping Chinese fuel demand will benefit from stimulus measures after a lackluster 2024. China, however, is going through a structural change in demand due to rapidly rising sales of electric vehicles.

A widening of the premium, a structure called backwardation, generally indicates a perception of tighter prompt supply. The opposite structure, in which prices for nearby delivery are cheaper, suggests ample supply and is called contango.

“The tighter crude market is unmistakenly mirrored in the deepening Brent backwardation,” Varga added.

The premium of the first-month Brent contract to the second month has almost doubled this year, rising from 40 cents a barrel on Dec. 31 to as much as 75 cents on Wednesday.
Source: Reuters