Oil Ekes Out Second Monthly Gain as Spreads Point to Tightness

(Bloomberg) -- Oil steadied to head for a second monthly gain on expectations that OPEC+ will opt to extend supply cuts, with underlying market metrics pointing to a gradual tightening of near-term conditions.

Global benchmark Brent was little changed below $84 a barrel, up more than 2% in February following a bigger gain the month before. West Texas Intermediate was above $78. Crude timespreads have widened further into backwardation, a bullish pattern marked by near-term prices above longer-dated ones.

Crude’s back-to-back monthly advance has lifted prices to the upper end of what’s been a tight year-to-date trading band. The climb has been supported by supply cuts from OPEC and its allies, and the group is widely expected to agree to prolong the reductions into the second quarter. Tensions in the Middle East, including disruptions to Red Sea shipping, have also aided prices.

The market “does feel relatively tight,” according to Trafigura Group’s Chief Economist, Saad Rahim, who cited factors including “signs of life” in global manufacturing and petrochemicals. “You’re hearing the phrase ‘upside risk’ a lot more than you have in the past couple of years.”

WTI’s prompt spread — the difference between its two nearest contracts — was 73 cents a barrel in backwardation. That’s up from 11 cents a month ago, and a shift from contango pricing — the opposite pattern — at the end of December.

Russia’s Deputy Prime Minister Alexander Novak said earlier this week that it was too soon to say whether voluntary output cuts by OPEC+ nations would be extended, according to a report from Interfax. Still, banks including Goldman Sachs Group Inc. have said they expect the reductions would be prolonged.

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