U.S. oil benchmark hits 7-year high with tight supply in focus

December Brent crude BRNZ21, +0.99%, the global benchmark, was up 90 cents, or 1.1%, at $86.43 a barrel on ICE Futures Europe. January Brent BRN00, BRNF22, +1.05%, the most actively traded contract, was up 88 cents, or 1%, at $85.52 a barrel.

Spreads continued to tell the tale of tightening U.S. supplies. WTI’s discount to Brent has narrowed from around $4 a barrel earlier this month to around $1.50, noted Warren Patterson, head of commodities strategy at ING, in a note.

Meanwhile, oil inventories at Cushing, Oklahoma, the delivery hub for Nymex crude futures, continue to decline and stand near 30 million barrels, he said. Analysts have noted the sharp backwardation — when nearby contracts trade at a premium to deferred contracts — in WTI futures.

Patterson noted the “prompt” WTI spread — December futures versus January CLF22, +1.28% — stands at more than $1.40, the strongest since 2018 when Cushing inventories fell to less than 22 million barrels. A continuation of the trend would likely start to begin weighing on U.S. crude exports, he said.

Meanwhile, remarks over the weekend by Saudi Arabia’s energy minister were taken as a sign that the Organization of the Petroleum Exporting Countries and its allies — a group known as OPEC+ — has little appetite for further boosting output. The remarks by Prince Abdulaziz bin Salman underlined concerns the COVID-19 impact could still undercut demand in the near term.

“We are not yet out of the woods, he told Bloomberg Television on Saturday. “We need to be careful. The crisis is contained but is not necessarily over.”