By John Kemp
LONDON, April 12 Premiums for nearby Brent
futures contracts have fallen sharply since the start
of the week in a sign the market is no longer worried about
serious supply shortfalls over the summer.
The premium for Brent delivered in May rather than June has
fallen from 60 cents per barrel on April 5 to just over 10 cents
in recent trading. It is the lowest premium since late January.
Premiums for June, July, August and September deliveries
have also shrunk sharply in the last four trading sessions ().
Timespreads are regarded by most market analysts as a good
proxy for tightness in physical supply. The collapse in the
spreads coincides with a host of other indications that the
physical market is not as tight as analysts and investors feared
In its latest monthly "Oil Market Report", published earlier
on Thursday, the International Energy Agency acknowledged that
"the cycle of repeatedly tightening fundamentals evident since
2009 has been broken for now", ending a tightening trend visible
over the previous 10 quarters.
The report cited sluggish oil demand and rising production
by Saudi Arabia as responsible for a potential build in global
oil stocks of as much as 1 million barrels per day in the first
three months of the year. Much of the oil has been absorbed into
strategic inventories in China and Saudi Arabia. Nonetheless, it
has eased fears about near-term disruptions.
Tensions between Iran and the five permanent members of the
Security Council plus Germany (P5+1) also appear to be easing
somewhat as both sides hint at flexibility ahead of negotiations
on Iran's nuclear enrichment programme in Istanbul this weekend.
The P5+1 will not lay out demands when talks open but will
be looking for signs that Iran is ready to make concessions, one
Western diplomat told Reuters reporters. Iran has promised "new
Israel has indicated it would accept as a first priority an
end to high-level 20 percent uranium enrichment, which would be
easier to enrich further to bomb-grade 90 percent purity,
leaving the thornier issues to one side for the moment
The market has also become convinced that policymakers are
likely to order the release of strategic crude and product
reserves within the next couple of months if prices continue
rising or there is any prospect of a supply shortfall.
Spot crude prices have been trending gently downwards for
more than a month.
Spreads between various crude grades have also pointed to a
well supplied market. Price differentials for physical grades
have backed up claims by Saudi Oil Minister Ali al-Naimi that
the market is awash with crude, as my colleague Ikuko Kurahone
pointed out last week.
Brent timespreads were one of the last signs of tightness.
Now they are falling into line with other indications of a