Oil traders have become much more concerned in recent weeks about the potential impact of U.S. sanctions on Iran and the effect on the availability of crude at the end of the year, reports Reuters.
Brent futures for November have moved to a premium of 45 cents a barrel over the December contract, in a sharp reversal from early last month, when the earlier contract traded at a 20 cent discount.
The gyrations in the futures curve are linked closely to traders' perceptions of the availability of seaborne crude once sanctions are re-imposed from early November.
The November-December calendar spread moved into an increasing premium (backwardation) between July 2017 and May 2018, reflecting the overall tightening of the oil market.
Rapid growth in consumption, output restraint by OPEC and its allies as well as unexpected disruptions to production in Venezuela and some African countries all helped to reduce excess oil inventories.
The U.S. decision to re-impose sanctions on Iran's exports from early November contributed to a forecast tightening of the market, pushing the Nov-Dec spread to a premium of more than 50 cents in early May.
But the calendar spread subsequently collapsed as OPEC, led by Saudi Arabia, and its non-OPEC allies, led by Russia, started to increase production from May onwards.
For a short period, in late July and early August, the Nov-Dec spread was trading at a small but significant discount consistent with plentiful availability of oil at the end of the year.
In recent weeks, however, the spread has tightened again, amid signs that output from the Permian Basin in Texas is levelling off and that Saudi Arabia is raising production more slowly than expected.
Traders have become much more cautious about crude availability late this year, reflected in a rise in spot oil prices, tighter calendar spreads and an increase in bullish hedge fund positioning in crude futures.