Brent oil six-month spread falls to lowest since Jan as supply fears ease

LONDON, April 7 (Reuters) – The Brent crude six-month spread has fallen to its lowest since January, Refinitiv Eikon data showed, as a release of strategic oil reserves by the United States and other nations eases supply fears.

Backwardation, when prices for a nearby contract are higher than those for later delivery, typically indicates tight supply in the near term.

The six-month spread  fell to $4.98 a barrel on Thursday, the lowest since Jan. 25.

The drop follows a move by International Energy Agency members to tap 60 million barrels from storage, on top of a 180 million-barrel release announced earlier by Washington aimed at cooling prices after Russia’s invasion of Ukraine.

“The market reaction to the drastic step taken by the IEA and the U.S. government to collectively release 240 million barrels of crude oil from strategic stocks has understandably been somewhat bearish,” said Tamas Varga of oil broker PVM.

The outright price of Brent surged to above $139 a barrel, the highest since 2008, in the aftermath of Russia’s invasion, which compounded existing supply concerns.

The six-month Brent spread hit a record high $22.87 on March 8.

Western sanctions and buyer aversion have already disrupted Russian oil supply and the IEA has warned that the market could lose 3 million barrels per day (bpd) of Russian crude and refined products from April. IEA/M

Despite this projected loss, the volume coming from the reserves release is enough to dampen supply fears, other analysts said.

“In view of these quantities, the previous concerns about tight supplies are no longer justified,” Carsten Fritsch of Commerzbank said in a report.