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Demand for North Sea crude is resurgent as inventories of the grade stored on ships docked around the world fall from four-month highs last week, according to a new report by Reuters.
Trading sources indicated that refineries in Britain have begun to process crude from storage, which has brought inventories down to 6 million barrels from 9 million last week.
Oil futures had been in contango for most of 2017, which occurs when near-term contracts trade at a discount to deliveries further in the future. Generally, a contango reflects concerns about near-term oversupply, but news of declining inventories suggests a tilt towards backwardation.
The market is still at the steepest contango since November, and buyers are storing the extra oil in plus-sized tankers. Reuters reports that a growing number of old oil tankers have been contracted out to store oil in Southeast Asia, which allows traders to pay for storage in hopes of selling their goods at a higher price at a later date. "Too much unsold oil is headed to Asia," Oystein Berentsen, managing director for oil trading company Strong Petroleum, said in a Reuters interview a couple of weeks ago.
Chinese refiners will begin consuming the extra oil in due course, analysts now say.
"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.
Brent barrel prices have reached a two-week high in the past six days, surpassing the $47 mark in the longest stretch of consecutive gains since back in April. That was before OPEC decided to extend its 1.2-million-barrel output cut for nine more months, while allowing Nigeria and Libya to continue their production recovery.
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…