Opec, traders in standoff

LONDON. — OPEC and oil traders are now in fundamental disagreement about the market outlook and the standoff is fuelling a sharp rise in prices that could spell trouble for the global economy over the next 18 months.

The overall balance between supply and demand is “healthy” according to a statement from the Joint Ministerial Monitoring Committee of OPEC and non-OPEC producers last month.

The committee expressed its satisfaction regarding the current oil market outlook, according to a press statement released afterwards (“JMMC meets in Algiers to monitor developments in the oil market”, OPEC, September 23).

But where the committee sees a balanced market and warned about downside risks to demand in 2019, traders see a market that is increasingly tight and are worried about the adequacy of future supply.

Front-month Brent crude futures have jumped by almost $14 per barrel (20 percent) since the middle of August, including an increase of nearly $6 (7 percent) since the JMMC meeting, to their highest in almost four years.

Brent’s six-month calendar spread, which
has been a good proxy for the global supply-demand balance in the last 25 years, has risen by $2.50 per barrel and swung from a small contango into a pronounced backwardation.

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