The backwardation of the Dated Brent crude oil benchmark widened to a six-week high Monday on stronger demand from European and Asian refiners, according to traders.
Dated Brent was assessed at a $0.805/barrel premium to second-month cash BFOE Monday, the widest gap since April 5, according to Platts data.
Traders said the backwardation had widened due to a higher demand forecast for European refiners in June after low runs in May and amid talk of export cargoes to South Korea.
Crude and refined product stocks in Europe remain low by historical standards, they added, fueling the increase.
"The market looks in reasonable shape...stocks are low in Europe," said one trader. "As a refiner if you miss a cargo, you haven't got that much crude to fall back on."
A trade agreement between the EU and South Korea, ratified last July, created an incentive for crude exports from the North Sea to the Asian country by removing a 3% duty that had previously applied, leading to higher European crude prices, traders said.
The trend is likely to continue in June, with two million barrels of Forties crude fixed by Glencore to South Korea and two million barrels planned by Chevron, they added.
"Forties is a very good replacement for Iranian barrels...the latest fixture may not have been finalized but there's a lot in it," said a second trader.
By contrast, the backwardation of the Brent curve for oil loading beyond the summer -- after the EU embargo on the import of Iranian crude takes effect -- has narrowed in recent days, following reports of an agreement between the International Atomic Energy Agency and Iran to grant IAEA inspectors access to its nuclear facilities.
"An agreement is to be signed within the next few days," analysts at Commerzbank wrote Tuesday. "This should result in a reduction in the risk premium and a further decrease in oil prices."
Dated Brent was assessed at $108.905/b Monday, only $0.695/b short of its lowest level since late January, which was reached Friday.
