Nearby Brent crude spread hits 2023 high on tight supply

LONDON: The spread between the front and second month contract for global oil benchmark Brent has widened to its highest this year, in another strong indicator of a supply deficit fuelled by protracted voluntary cuts from OPEC+.

Brent, which is used to price more than three-quarters of the world’s traded oil, has been rising since late June, as leading producer Saudi Arabia spearheaded output cuts.

The premium of the front month Brent contract to the second-month contract rose to as much as $2.45 a barrel on Thursday, the highest since October 2022. The November contract expires on Friday.

This structure, called backwardation, indicates tightening supply for prompt delivery.

“It is the impact of the supply constraints from Saudi Arabia and Russia. The market believes there is a genuine physical tightness,” Tamas Varga of oil broker PVM said.

Supply curbs implemented by the Organization of the Petroleum Exporting Countries and allies (OPEC+) have played a pivotal role in pushing futures prices to 10-month highs, in particular a combined 1.3 million barrel-per-day (bpd) voluntary cut from Russia and Saudi Arabia until the end of the year.