The monthly price spreads for Brent crude futures are facing significant headwinds from the current higher interest rate environment and recessionary fears, Goldman Sachs analysts said.
The spread between the first and 36-month Brent futures contracts are about $10 a barrel lower than what the bank has forecast, and are dislocated from current inventory levels, the analysts said in a note late on Tuesday.
Higher interest rates discourage investors from holding on to passive futures contracts while overly pessimistic views on demand have also depressed Brent timespreads, they added.
The spread between first- and sixth-month Brent futures has slipped to its widest contango in six months.
Timespreads refer to the price differential between monthly futures contracts and are used as supply indicators.
A contango timespread, where prompt prices are lower than those in future months, indicate ample supply. Backwardation, the reverse of contango, signals tight supply.
However, forecasts of 1.3 million barrels per day of oil supply deficit in the second half of the year should still drive timespreads about $10/bbl higher by the end of second quarter 2024, the analysts said.