Spreads at both ends of the oil futures curve rallied on Wednesday as the UK approved a Covid-19 vaccine and the physical market displayed signs of strength in Asia and the North Sea.
The nearest December contract for global benchmark Brent futures began trading at a premium again to the one for December 2022. It briefly flipped to positive last week. The structure, known as backwardation, signals growing expectations for the supply and demand balance to improve next year with a vaccine.
In New York, the so-called red spread for West Texas Intermediate crude also moved further into backwardation, after flipping to positive last week for the first time since February. The market structure has also flattened as producers take advantage of higher prices to boost their hedging levels.
The front-ends of the Brent and WTI curves are also showing strength amid rising demand from Asia and a healthier North Sea market, where most of the world’s crude is priced. Brent’s prompt spread moved back to backwardation on Wednesday, while WTI’s strengthened to its narrowest contango structure since July.