LONDON (Reuters) - The North Sea crude oil market is finally showing signs of long-lost strength, suggesting that some of the pessimism that has driven down oil futures by 5 percent this month and created a record bet against a price rise may be unjustified.
On Thursday, about 6 million barrels of North Sea Brent crude were being stored on ships, down from four-month highs of as many as 9 million last week, and trading sources said it seemed now refineries were starting to take in more cargoes.
The uptick in demand has tilted the physical Brent market has into backwardation, where prices for prompt-loading cargoes were trading above those for delivery further in the future.
This typically suggests the supply of oil for immediate delivery is harder to come by, but the North Sea market has been dogged in the last month by persistent oversupply that has seen traders store oil on ships rather than sell it.
The floating fleet is starting to shrink partly because of a shift in the derivatives market that has made it more attractive to sell cargoes now, rather than hold out for higher prices further ahead.
"Sentiment in the oil market remains morbid even though the physical market is perhaps showing some signs of emerging green shoots, thanks to Chinese teapots (refiners) slowly starting to come back to the market for crude," consultant Energy Aspects said.
The Brent crude futures price has risen by 8 percent to two-week highs above $47 a barrel in the last six days, its longest stretch of gains since April, even though concern about rapidly expanding global supply has prompted a number of market watchers to urge caution over the longevity of this move upward.
The contracts-for-difference (CFD) market, a derivative used to price and hedge trades of physical barrels of oil, shows prices for cargoes loading in one week's time now command their largest premium over those loading in two weeks' time for nearly six months.
One-week CFDs are trading at a premium of about 12 cents to two-week rates, from a premium of closer to 20 cents a week ago and the price of a barrel of physical Brent is at six-week highs.
Traders holding physical oil could "make a good sale" if they had bought the oil a couple of weeks ago and were now ready to sell it on the spot market, one trading source said.
A major driver of the weakness in both the physical and the futures market has been the resistance of global crude inventories to the efforts of OPEC and its 11 major partners to force a drawdown by cutting their oil production.
OPEC and a number of exporters such as Russia and Oman agreed to extend a 1.8-million barrels per day production cut into March next year to force global inventories to return to their long-term average levels and help price rise.
"The structure of the two main crude oil futures contract suggests that the market is well balanced for the time being," said PVM Oil Associates analyst Tamas Varga, referring to the structure of the Brent and U.S. crude futures market.
Editing by Louise Ireland