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10.07.2011

Oil’s physical strength defies slowdown woes

Source: Globe & Mail, Oct 7, 2011

The physical oil market continues to show a remarkable strength even if futures prices are lagging amid worries about the impact of an economic slowdown on demand.

The latest signal of supply and demand tightness comes from Asia and the Middle East. On the one hand, the cost of Oman-Dubai crude, the regional benchmark, in the spot market has surged significantly above their price for delivery later on the year and into early 2012. The downward slope of the curve, known as backwardation, is an indication of immediate tightness. On the other, the premium that Saudi Arabia charges to Asian refiners for its main crude stream has jumped to an all-time high.

As Edward Morse, the veteran oil watcher at Citigroup in New York, put it earlier this week, “the dire macro outlook continues to weight on the oil complex … but there remains very little in the way of weakness visible in the oil market itself”.

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