Latest news with #backwardation
Reuters
2 days ago
- Business
- Reuters
Falling LME copper stocks inflate premium for nearby contracts
LONDON, June 6 (Reuters) - Concerns about the nearby supply of copper on the London Metal Exchange (LME) due to falling stocks in LME-registered warehouses has created a premium for nearby contracts against those with longer maturities. The discounts for nearby LME copper contracts against longer dated forwards flipped into premiums a month ago as higher COMEX prices than on the LME continued to attract metal. The premium of the cash LME copper contract over benchmark three-month futures was last at $75 per ton after jumping to $93 on Thursday's close, highest in two and a half years. This compares with a discount of $63 in early April. "The backwardation indicates that there is some kind of a shortage. Because normally it is in contango," said Dan Smith, managing director at Commodity Market Analytics. Total copper stocks in the LME warehouse system have halved since mid-February to 132,400 tons, the lowest in almost a year. Available stocks, those not marked for delivery, at 54,600 tons are the lowest since July, 2023. The sharp move in the spread on Thursday was caused by fresh cancellations in LME stocks, said Alastair Munro, senior base metals strategist EMEA, at broker Marex. The premium eased on Friday as there were no major new cancellations of warrants, title documents that confer ownership, in Friday's data, he said, even though stocks kept on leaving the LME-registered warehouses. Fuelling worries are recent mine supply disruptions and traders diverting copper metal to the U.S. while Washington investigates the potential for import tariffs on copper. Even though there is no dominant holder of the LME copper warrants ahead of the expiry of contracts on the third Wednesday of the month - something which could concern the market, as of June 4 one party held more than 90% of copper cash contracts, helping to keep the premium elevated.
Zawya
08-05-2025
- Business
- Zawya
Oil market 'smile' suggests Saudi Arabia's output shift was well timed
LONDON: The oil market appears to be telling Saudi Arabia that its shift to pumping more oil after five years of cutting output was well timed. The kingdom has in recent weeks pushed fellow OPEC+ members to produce more oil despite fears about an economic slowdown, a marked change in policy that helped oil prices settle at a four-year low on Monday. But despite OPEC+ agreeing to raise output by a cumulative near one million barrels per day (bpd) between April and June, the oil market is still reflecting a perception of tight supply over the next few months of peak summer demand. That has pushed the futures curve, which reflects forward prices, into a rare "smile" shape, a structure Morgan Stanley analysts said was last seen only briefly in February 2020. Brent futures' most prompt July contract was trading at a 74 cent per barrel premium to the October contract late on Wednesday, a market structure known as backwardation, which indicates immediate tight supply. However, from November, prompt prices flip to a discount to forward prices, a structure known as contango, indicating oversupply and the likelihood that summer 2025 might be the last gasp of a tight oil market. Having backwardation and contango together is unusual and gives the chart its "smile". Energy Aspects analyst Richard Price said the structure was a result of tight prompt supply coupled with expectations of U.S. President Donald Trump's trade wars slowing economic activity later in the year. OPEC+ cited low stocks and healthy prompt demand when it agreed on Saturday to raise output for July. Global oil inventories stood near the bottom of their historical five-year range at 7.647 billion barrels, according to the International Energy Agency's latest available data for February, down from 7.709 billion barrels a year earlier. Meanwhile, refiners' appetite for crude is rising ahead of the July-August peak driving season. "Refinery maintenance in the Atlantic basin will start to taper off, increasing oil demand (for refining)... Summer driving should provide some support," BNP Paribas analyst Aldo Spanjer said. Global oil demand will rise by 1.3 million barrels per day in the third quarter of 2025 from the second quarter to average 104.51 million bpd, the IEA said in its latest report in April. The 1 million bpd increases already announced by OPEC+ and the possibility of a further 0.4 million barrels per day in July, almost fully match the predicted rise in demand. HIGHER SUPPLY OUTLOOK OPEC's decision to add more barrels to the market did change the shape of the 'smile', but the fact that the structure did not flip into contango reflects a balance between supply and demand, said an executive at a major trading house. At the start of last week, eight consecutive monthly Brent contracts were backwardated through to January 2026, double the current four. The four-month Brent spread was more than twice as wide at $1.85 a barrel. Outside of OPEC+, new projects coming online in Brazil and Guyana should boost supply towards the end of 2025, the IEA said in its monthly report in April. Robust supply growth combined with slowing demand would result in a rapid market weakening towards the end of 2025, Morgan Stanley said. (Reporting by Robert Harvey, additional reporting by Ahmad Ghaddar and Dmitry Zhdannikov, editing by Alex Lawler and Kirsten Donovan)
