Shafaq News / Brent prices and spreads indicate the oil market is close to balance – with upside risks from low inventories and supply restraint by Saudi Arabia and its OPEC⁺ allies offset by downside risks from a slowing global economy.

The prolonged calm has disappointed producers as well as investors hoping output cuts announced by OPEC⁺ in early April and an extra voluntary cut by Saudi Arabia announced in June would quickly push prices higher.

In the physical market, dated Brent prices are in contango through the rest of June and July, indicating traders expect plenty of crude to be available.

The spread in dated prices between July and August ended nearly flat on June 21, down from a backwardation of as much as 64 cents per barrel on April 12.

The spread between August and September was still in a backwardation of 34 cents per barrel, but that was half the backwardation of 70 cents reported in April, as concerns about a possible shortage have lessened.

The front-month spread is in the 50th percentile for all months since the start of the century, implying production and consumption are close to balance.

The second-month spread is firmer, in the 66th percentile, but still implies the market is expected to tighten only gradually in the third quarter.

On the financial side, the same pattern is visible, with the futures spread from August to September slumping to a contango of 2 cents from a backwardation of as much as 70 cents in April.

The spread for the whole of the fourth quarter is in a backwardation of less than $1 down from $2 in April, implying any tightening is expected to be gradual.

Turning from spreads to outright prices, front-month futures closed at $77 on June 21, in the 45th percentile for all days since the start of the century, after adjusting for inflation.

Real prices are only slightly below the long-term average of $81, confirming production and consumption are expected to be roughly in balance for the rest of the year.

(Reuters)