COLUMN-Slumping spreads point to slight easing in oil: Kemp
(John Kemp is a Reuters market analyst. The views expressed are his own)
By John Kemp
LONDON, March 7 (Reuters) - Premiums for Brent delivered over the peak summer driving season have fallen nearly 50 percent over the last three trading sessions, implying that refinery demand is starting to fall away as prices climb.
The premium for ICE Brent delivered in May rather than June has slumped from a high of 87 cents per barrel on March 1 to just 49 cents on March 6, according to Reuters data, with somewhat smaller declines for the Jun-Jul, Jul-Aug, and Aug-Sep spreads (here).
For some oil watchers, spreads provide a truer picture of supply-demand in the physical market because trading is dominated by oil companies, refiners and physical traders, who focus on fundamentals, unlike flat prices, which often appear heavily influenced by hedge funds and other financial players responding to macroeconomic triggers and sentiment.
In the second half of January and through February, strengthening spreads pointed to real tightening in the Brent market, as disruptions in South Sudan, Syria and Yemen, coupled with growing difficulties handling Iranian crude because of sanctions, sent refiners scrambling to lock in supplies for the key summer gasoline season.
Time spreads surged in tandem with a rally in flat prices. But the last three trading sessions have seen the biggest sell-off in the spreads since the start of the year.
It comes as flat prices have appeared to top out, at least for the time being, amid concerns about the prospective impact of $4 gasoline on the recovery, worries about demand destruction and refinery demand, and signs of diplomatic overtures between Iran and the United States, which could reduce tensions in the short term.
Iran may also be finding ways to work around sanctions and restart the flow of crude to Africa and Asia, as my colleague Peg Mackey explains here:
Time spreads still point to a tight market over the summer months, but no longer as explosively short as feared a week ago. (Editing by Jason Neely)
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