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Oil Prices Climb Out of Contango as Summer Demand Kicks In

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1. Summer Demand Finally Kicks In, Lifting Oil Prices Out of Contango

- The summer rally of the oil markets might finally materialize as ICE Brent crept up to $85 per barrel, even higher than it was before the OPEC+ meeting, and contango in the North Sea paper market disappeared.

- The unwinding of bearish bets on crude oil and robust physical trading have buoyed European sentiment, with Brent contracts for difference (CFDs) now swinging into backwardation with the W1-W6 spread now at almost $2 per barrel.

- Hurricanes have been the biggest bullish factor across the Americas as Tropical Storm Alberto swept across Mexico and prompted US refiners to stock up on crude, especially on barrels produced in the Gulf of Mexico.

- Because of the hurricane season and the risks arising from it, the arbitrage of US crude into Europe is much weaker than it used to be, potentially lifting European prices even higher.

2. Hedge Funds Turn Really Bullish on Europe’s Natural Gas

- Investment funds are increasingly betting on European natural gas prices to rise on the back of future supply concerns, just as competition for available LNG cargoes intensifies with Asia.

- European TTF gas futures rose to €35 per MWh on the back of Norwegian supply disruptions earlier this month and even though the Nyhamna gas processing plant is back in operation, gas prices haven’t really decreased since then.

- Additional concerns emerged this week…

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