American crude inventories slipped by 7.42 million barrels last week as refiners boosted operating rates to the highest level in more than a decade, signaling strong demand, the Energy Information Administration said on Thursday.
The six-month Brent calendar spread is trading around the 78th percentile of its historical range, up from the 22nd percentile at the same point previous year.
The Brent market has cycled regularly between backwardation and contango over the last 25 years as it moves between periods of under- and oversupply.
The cuts started in January 2017 and are scheduled to cover all of 2018. Domestic demand was also higher: US product supplied for crude oil and petroleum products was at the highest level since 2007.
That has helped to tighten markets. If OPEC loses control at that point, which is quite possible, the market could suddenly be flooded with cheap oil.
"Renewed geopolitical risks (of which we have had plenty during the second half of 2017) are likely to be the key source of support and one which could upset our call for stable-to-lower prices during 2018", Hansen said.
But against this backdrop of rising prices and falling oil gluts there are signs that the price rises won't last and we may well be looking at a sustained period of falls.
At the time of writing, WTI traded at US$61.79 a barrel, while Brent crude was at US$67.87 a barrel.
The six-month calendar spread hit about $4.50 per barrel backwardation in both cases before starting to ease lower. "People are optimistic that there are some tailwinds behind the underlying crude oil price".
For now, OPEC members are sticking with the production quotas.
Despite relatively high USA crude oil production, curtailments in production by members of the Organization of the Petroleum Exporting Countries (OPEC) and robust global demand supported crude oil price increases in 2017, EIA said.
Both benchmarks gained nearly 1.5% in the week when compared to the last week of 2017, as the oil market was seen still tightening and the bullish mood was fuelled by new factors. "As a result, OPEC will struggle to meet its target of a reduction in OECD stocks to their five-year average", analysts at Capital Economics wrote in a research note Friday.
The US Energy Information Administration is already forecasting US shale output to increase by 780,000 b/d in 2018, more than double the 380,000 b/d it expanded by a year ago.