| NEW YORK
NEW YORK Aug 7 European oil prices in a year's
time have risen to a premium over immediate prices for the first
time since 2012, as turmoil in Iraq and Libya and tensions
between Russia and the West elevate supply risks in the months
Front-month September Brent settled at $105.44 on
Thursday while the contract for delivery over 12 months
ended at $105.47 a barrel, the first time in two years that the
spread has inverted, according to Reuters data.
U.S. prices for 2015 and beyond have also remained strong
despite a sharp fall in immediate-delivery crude to its lowest
in six months, although the shift is not so severe. Short-term
prices have been supported by low stockpiles in Cushing,
Oklahoma, far away from geopolitical risks.
The so-called forward curve for oil prices has flattened
abruptly over the last couple of months, with near-term prices
tumbling quickly as concerns of an immediate disruption in
supplies gave way to a growing surplus of regional crude as due
to poor refining margins and weak demand.
But longer-term prices have remained relatively stronger,
with a growing list of factors that could threaten to eat into
oil production in the months or years ahead, if not today.
The prospect of rising output from Iraq has been dimmed by
the dramatic onset of a Sunni insurgency that has spooked
investors. On Thursday, two big U.S. oil companies were pulling
staff from operations in the northern region of Kurdistan.
The ongoing crisis between Russia and the West over Ukraine
has prompted several waves of sanctions, including measures last
week meant to cut off sales of certain drilling equipment, with
the prospect of further measures to come - or even a retaliatory
backlash that could potentially erode exports.
Violence in Libya has dashed confidence in the country's
quick recovery to pre-war production, while negotiations between
Iran and six world powers about the country's nuclear program -
and therefore the future of its oil output - are expected to
remain unsettled until next year.
"On the front side of the term (structure), nothing is going
to be resolved that will affect the markets," said Tariq Zahir,
an analyst at Tyche Capital Advisors in New York.
"But when you look that far ahead, the risk premium still
holds up: what if more sanctions are imposed on Russia? What if
the global economy goes into a slowdown and demand is weaker?"
FLATTEST OF THE SHALE ERA
Since April, prompt-month Brent prices have fallen by more
than $2. December 2015 crude has risen by $4.
The forward curve is now near its flattest since the onset
of the shale revolution in the United States three years ago,
when oil traders were forced to rethink their long-term vision
for oil supplies. With billions of barrels of shale reserves to
tap, fears of "peak oil" gave way to preparations of a lengthy
For many analysts, the real story is not how high long-dated
prices are, but how high they could have been.
"The real question is, if this geopolitical tension were
prior to the U.S. shale revolution, we would be up $20 to $30 a
barrel," said Phil Flynn, an analyst at Price Futures Group in
Chicago. "But now people are looking at the United States as a
safe harbor for oil."
Some note that with the United States ramping up oil
production to record-high levels and the Sunni insurgency still
far from the oilfields in the south of Iraq, imminent threats to
global supplies remain unlikely - and the market's focus should
be on weakness in immediate demand rather than long-term worry.
"Refinery runs over the past three months were at record
highs: We've never run this much crude, yet demand seems to be a
little languent, as the summer driving season is almost over,"
said Carl Larry, CEO of consultancy Oil Outlooks in Houston,
Texas. "But we're making assumptions that the U.S. economy will
be much better a year from now."
(Reporting by Lorenzo Ligato; editing by Gunna Dickson)