Brent Spread May Widen as Speculators Add Bets: Chart of the Day

Aug 21, 2014 12:01 am ET

Aug. 21 (Bloomberg) -- December Brent crude futures may widen their premium over the December 2015 contract from a three-year low as money managers increase positions, according to Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy.

The CHART OF THE DAY shows the gap between the two contracts dropped to 15 cents a barrel on Aug. 19, the lowest level since March 2011, from above $6 in June. The lower panel shows long positions held by money managers fell to a seven- month low in the week ended Aug. 12. The December contract is set to climb as oil demand increases toward the end of year, Tchilinguirian forecast.

The spread will return “towards $3 a barrel, making the current levels an opportune time to go long the spread,” he said in a report yesterday. “With the latest price move, money managers now have an attractive opportunity to rebuild their reduced net-long futures positions.”

Rising demand in the fourth quarter will “tighten” the market, he said. Oil consumption will rise to 94 million barrels a day in the next quarter, up from 93.4 million from July to September, the International Energy Agency forecast in its monthly report on Aug. 12.

Brent for December delivery advanced 61 cents to $103.43 a barrel on the London-based ICE Futures Europe exchange yesterday, 74 cents higher than the December 2015 contract. Futures markets are in backwardation when contracts for delivery in later months are less expensive than nearby contracts.

Long positions held by money managers dropped to 191,278 contracts, futures and options combined, in the week ended Aug. 12, down 34 percent from 288,150 on July 1, ICE data showed.