The incentive for investors to buy and hold Brent crude has dwindled to its weakest level in eight months as supplies from the North Sea recover, according to Bloomberg report. The report showed that Brent’s premium to West Texas Intermediate (WTI) shrank to as little as $15.27 a barrel last Thursday, the smallest gap since January 18. The spread widened to a record $28.08 in October 2011.
The premium for immediate supplies of Brent crude versus later deliveries shrank to 28 cents a barrel on March 13, the least since July, as production headed for the highest in 10 months. The narrowing spread is dimming the attraction of buying front-month futures and then transferring, or rolling, the position into the next contract at each monthly expiry. Brent traded as high as $109.55 a barrel in London Friday.
The slide in Brent returns may be leading speculators to trim their holdings. Hedge funds and other money managers cut bullish bets on Brent crude by 159,816 lots in the week ended February 26, the biggest reduction since August 9, 2011, according to data from ICE Futures Europe.
“Tightness in the Brent market is being alleviated,” said Hakan Kocayusufpasaoglu, chief investment officer at Archbridge Capital AG, a Zug, Switzerland-based hedge fund. “For long- only, commodity-index investors the narrowing of the backwardation is going to make Brent slightly less attractive.”
“The Brent structure has been weakening,” Olivier Jakob, managing director at consultant Petromatrix GmbH in Zug, Switzerland, said by phone on March 13. “And if Brent cannot sustain a high enough roll return, then investors will be more hesitant to hold it at these kinds of price levels.”