Brent forward contracts have faced pressure due to an oversupply in the oil market, leading to a drop in backwardation observed a month ago. Recently, the market showed signs of contango with the 6-month contract trading higher than the front month. However, due to recent oil price increases, backwardation has strengthened again, with the next Brent forward contract trading $2 above the one for six months. This change is influenced by a possible cut in oil supplies from Russia following US sanctions.<\/p>\n
In the gasoil market, backwardation also lessened but did not switch to contango. Russian diesel supply constraints have created a shortage in the European market, partly due to Ukrainian drone attacks on Russian refineries reducing diesel production. The IEA reports a drop in Russian gasoil exports from 800,000 barrels in August to 720,000 in September. In September 2024, this export number stood at 840,000 barrels. A ban for resellers since October 1 has further tightened supply, pushing the gasoil price to over $700 per ton, with the gasoil crack spread widening to $27 per barrel. The FXStreet Insights Team provides market observations and insights from experts on such developments.<\/p>\n
We are seeing the Brent forward curve steepen into backwardation again, a pattern reminiscent of what happened around this time last year. The front-month contract is now trading at a premium of nearly $3 over the six-month contract, which is even wider than the $2 spread we saw in late 2024. This signals that the market is very concerned about immediate supply availability.<\/p>\n
This tightness is largely a response to renewed fears over Russian oil supplies following the latest round of US sanctions announced last month. We’ve seen Russian seaborne crude exports dip below 3 million barrels per day in recent weeks, a significant drop from the more stable levels of over 3.4 million barrels per day seen earlier in the year. For traders, this suggests that long positions in near-term Brent futures could be profitable as long as these supply risks persist.<\/p>\n
The situation in refined products, especially gasoil, is also mirroring the tightness we observed in 2024. The market for diesel is showing significant strength, indicating that this is not just a crude oil story. Traders should therefore be looking beyond just the main Brent contract.<\/p>\n
A renewed wave of Ukrainian drone attacks on Russian refineries over the past month has further constrained diesel output, compounding the issue. This has pushed the gasoil crack spread above $30 per barrel, a notable increase from the $27 level seen a year ago. Bullish positions on the gasoil\/diesel market, or trades that favor gasoil over crude, appear well-supported by these fundamentals.<\/p>\n
Given these dynamics, derivative strategies that benefit from volatility and upward price pressure are worth considering. Buying call options on near-dated Brent or gasoil contracts could offer upside exposure while limiting risk. The market is pricing in a supply risk premium, and any escalation could cause these spreads to widen further.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Brent backwardation strengthens amid oil supply concerns; gasoil prices rise on reduced Russian exports and refinery issues.<\/p>\n","protected":false},"author":62,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-33161","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/33161","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=33161"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/33161\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=33161"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=33161"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=33161"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}