LONDON: Brent crude oil has surpassed the $60-a-barrel threshold for the first time since mid-2015, buoyed by the prospect of an end to a three-year old surplus that crushed prices, wiped billions off corporate exploration budgets and squeezed major exporters.
The price of oil was at $60.70 a barrel on Monday, up a full 20 percent year-on-year.
The rally has pushed the front-month December 2017 contract to a premium of $2.60 a barrel over the December 2018 contract.
This structure, known as backwardation, was at the top of OPEC's "to do" list, along with targeting record-high global inventories. Such a premium gives holders of physical oil an incentive to sell their stored barrels for a higher price.
This is the largest gap for the active so-called "Dec-Dec spread" since late 2014, when OPEC hit the markets with its all-you-can-pump strategy to muscle out higher-cost producers and beef up its market share.
Ten months into an existing supply agreement, Saudi Arabia, the effective leader of the Organization of the Petroleum Exporting Countries, has suggested the group, together with its 10 partners extend the output cut of 1.8 million barrels per day beyond March to keep draining oil from storage.
Adding to the sense of bullishness, the physical markets are showing signs of tightening supply, as prices for prompt-loading barrels of oil surpass those for future delivery.
The rates for cargoes of oil loading in one week have traded at a premium over those loading in six weeks almost consistently since June, which is when the Brent futures price began its slow ascent towards the $60 watermark from a six-month low of $44.35.
The physical markets are showing signs of tightening supply. Rates for cargoes of oil loading in one week have traded at a premium over those loading in six weeks almost consistently since June, which is when the Brent futures price began its slow ascent towards the $60 from a six-month low of $44.35.
Since June, money managers have more than doubled the size of their bets on a continued rally in the Brent crude price to almost the largest on record.
Data from the InterContinental Exchange on Friday showed investors now hold a net long position in Brent futures and options equal to just over 506 million barrels of oil, or around a working week of global demand.
The following four charts show how the shift in the Brent futures market structure has forced the long-awaited drain in inventories, while investors prepare for life after $60.
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