Oil & Energy
Dated Brent-Futures Spread Above $25/bbl Signals Prompt Tightness, Steep Backwardation, EIA Says
Dated Brent crude spot prices surged to a premium of over $25 per barrel over the futures contract in early April, signaling acute short-term supply tightness amid ongoing flow disruptions in the Strait of Hormuz, the Energy Information Administration said in a Friday note."High Brent backwardation along the lines of what we've seen in recent weeks likely reflects extreme market tightness in the very short term since the closure of the Strait of Hormuz," according to the note.The premium marks a widening of the spread between spot and futures prices, and points to acute strain in prompt supply as buyers scramble to secure immediate cargoes.Spot prices, which reflect immediate delivery of crude, have reacted sharply to the disruption in the Hormuz, while futures contracts, which price oil for delivery in coming months and therefore embed expectations of easing supply constraints over time, have reacted less sharply.Brent crude oil prices refer to a basket of North Sea crude grades, such as Brent, Forties, Oseberg, Ekofisk, and Troll, which is also known as BFOET.Gradual output declines of these crude oil grades led most Brent price assessments to devise methods to incorporate the US West Texas Intermediate crude, priced at Midland, into the basket of Brent crude oil grades in 2023, according to the EIA.Futures contracts for Brent, traded on the Intercontinental Exchange (ICE), remain the most liquid and widely referenced measure of Brent prices among financial and physical market participants.The EIA said the front-month contract, currently representing June delivery during April trading, serves as the primary hedging and pricing tool, even as it diverges from spot-market dynamics during periods of acute disruption.Dated Brent, in contrast, reflects physical cargoes loading from North Sea terminals, and is assessed by pricing agencies including S&P Platts, Argus and Reuters."As they are purchased, these crude oil volumes are then shipped by the buyer to a port facility where they can be transported to a crude oil refinery for processing into finished products," according to the EIA.The Brent futures markets trade in backwardation under typical conditions, reflecting "the spread between the Dated Brent spot price and the front-month Brent futures price is narrow and tends to be positive."This indicates that a barrel of crude for prompt delivery is priced higher than a barrel for delivery two months into the future."Typically, both prices move together on similar news and market developments," the EIA said.Price: $156.43, Change: $-1.05, Percent Change: -0.67%
$ICE