Column: Oil market cycle slips into reverse - Kemp - Reuters

Column: Oil market cycle slips into reverse - Kemp - Reuters:

The oil market’s rebalancing has run out of momentum and gone into reverse over the last two months as the lingering coronavirus epidemic has resulted in a much slower than anticipated resumption of fuel demand.

In the middle of June, most forecasters expected the market to move into a substantial production-consumption deficit in the second half of the year and into 2021, leading to a sustained draw down in excess stocks.

Based on experience, the result should have been continued upward pressure on spot prices and a progressive shift from contango to backwardation in the structure of dated Brent and futures prices.

But over the last two months, spot prices have stopped rising, and even started to ease, while the calendar spreads between pairs of delivery dates have softened steadily. 

Price moves are consistent with a market that remains over-supplied rather than under-supplied. Rather than in a tightening phase of the cycle, the oil market currently appears to be in a softening one.