European oil prices in a year's time have risen to a premium over immediate prices for the first time since 2012, as turmoil in Iraq and Libya and tensions between Russia and the West elevate supply risks in the months ahead.
Front-month September Brent settled at $105.44 on Thursday while the contract for delivery over 12 months ended at $105.47 a barrel, the first time in two years that the spread has inverted, according to Reuters data.
U.S. prices for 2015 and beyond have also remained strong despite a sharp fall in immediate-delivery crude to its lowest in six months, although the shift is not so severe. Short-term prices have been supported by low stockpiles in Cushing, Oklahoma, far away from geopolitical risks.
The so-called forward curve for oil prices has flattened abruptly over the last couple of months, with near-term prices tumbling quickly as concerns of an immediate disruption in supplies gave way to a growing surplus of regional crude as due to poor refining margins and weak demand.
But longer-term prices have remained relatively stronger, with a growing list of factors that could threaten to eat into oil production in the months or years ahead, if not today.
The prospect of rising output from Iraq has been dimmed by the dramatic onset of a Sunni insurgency that has spooked investors. On Thursday, two big U.S. oil companies were pulling staff from operations in the northern region of Kurdistan.
The ongoing crisis between Russia and the West over Ukraine has prompted several waves of sanctions, including measures last week meant to cut off sales of certain drilling equipment, with the prospect of further measures to come - or even a retaliatory backlash that could potentially erode exports.
Violence in Libya has dashed confidence in the country's quick recovery to pre-war production, while negotiations between Iran and six world powers about the country's nuclear program - and therefore the future of its oil output - are expected to remain unsettled until next year.
"On the front side of the term (structure), nothing is going to be resolved that will affect the markets," said Tariq Zahir, an analyst at Tyche Capital Advisors in New York.
"But when you look that far ahead, the risk premium still holds up: what if more sanctions are imposed on Russia? What if the global economy goes into a slowdown and demand is weaker?"
FLATTEST OF THE SHALE ERA
Since April, prompt-month Brent prices have fallen by more than $2. December 2015 crude has risen by $4.
The forward curve is now near its flattest since the onset of the shale revolution in the United States three years ago, when oil traders were forced to rethink their long-term vision for oil supplies. With billions of barrels of shale reserves to tap, fears of "peak oil" gave way to preparations of a lengthy glut.
For many analysts, the real story is not how high long-dated prices are, but how high they could have been.
"The real question is, if this geopolitical tension were prior to the U.S. shale revolution, we would be up $20 to $30 a barrel," said Phil Flynn, an analyst at Price Futures Group in Chicago. "But now people are looking at the United States as a safe harbor for oil."
Some note that with the United States ramping up oil production to record-high levels and the Sunni insurgency still far from the oilfields in the south of Iraq, imminent threats to global supplies remain unlikely - and the market's focus should be on weakness in immediate demand rather than long-term worry.
"Refinery runs over the past three months were at record highs: We've never run this much crude, yet demand seems to be a little languent, as the summer driving season is almost over," said Carl Larry, CEO of consultancy Oil Outlooks in Houston, Texas. "But we're making assumptions that the U.S. economy will be much better a year from now."
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