Brent crude (ICE) posted gains in the fourth consecutive session on Monday and the front-month contract (expires in August) thus hit yet another six-month high. Meanwhile, however, backwardation in the front-end of the forward curve slightly eased – the spread between the front-month and the six month contract fell by 0.9 USD per barrel (USD/bbl) and at
the time of writing is seen at about 1.4 USD per barrel.
As we have already noted, we believe that current strength in time spreads in the Brent curve reflects rather Brent-specific factors than global oil market conditions. More specifically, we point out to steady declines in production of the key four grades which constitute the Brent benchmark (see charts below) which was amplified by the recent strike of Norwegian oil workers. The overall situation in the oil market remains, according to data of both IEA and EIA, broadly balanced.
However, we do not exclude further pressure on the short end of the Brent forward curve in weeks ahead. Let us remind that over past few weeks, Reuters has reported that loadings of North Sea oil would probably be delayed in July and August. Should additional problems occur, the price of the front-month contract might stay at heightened levels and the short-end of the curve might be even steeper.
Precious Metals
Gold price was hovering at 1590 USD per troy ounce (USD/toz) level on Monday. This weeks’ main event from the perspective of the yellow metal is, in our view, today’s testimony of Fed’s Bernanke before the Senate.
In his testimony, we expect Bernanke to keep the door open for more policy stimulation. However, he can not openly preannounce the August 1 decision. In this respect, the market interpretation/mood will at least be as important as the statement from Bernanke. That said, we assume that markets are now more inclined to take up indications on more policy stimulation than was recently the case. If so, Bernanke’s statement could be slightly positive for gold.