Oil’s Spreads Show The Depth Of OPEC+ Shock

By Jake Lloyd-Smith, Bloomberg markets live reporter and analyst

Well OPEC+ certainly knows how to spring a surprise, especially at the start of the week. The substantial production cut — which totals more than 1 million bpd on paper — will tighten market balances into 2H, reinforcing the impact of an expected increase in demand from China. The combination of lower global supply and higher consumption will put more backbone into prices that just two weeks ago had hit the lowest since 2021.

To gauge the way the market’s pricing in the move’s expected impact it’s instructive to look at some of the favored timespreads, particularly Brent’s December-December differential. This measure — the gap between the futures for the final month of this year versus the end of 2024 — got crushed last month as the banking turmoil spurred a flight from risk. This morning, it spiked by as much as $1.57 a barrel, dwarfing the usual daily move of a few cents.

It’s worth remembering that the latest salvo from OPEC+ comes after the US has already drawn down the nation’s emergency crude stockpile, with the Biden administration unleashing a torrent of oil from the Strategic Petroleum Reserve last year after Russia’s invasion of Ukraine.

Right now, the holdings sit at their lowest since the 1980s, effectively strengthening the hand of OPEC+.