Investors should sell front-month Brent oil futures and buy later-dated contracts as the price difference between them may narrow amid speculation governments will release emergency stockpiles, Deutsche Bank AG (DBK) said.
Gains in crude costs have increased speculation that emergency stockpiles including the Strategic Petroleum Reserve in the U.S. will be released to depress prices, according to a note today from Michael Lewis, an analyst at Deutsche Bank in London. The bank recommended the same investment strategy for U.S. gasoline futures as falling motor-fuel demand in the country may “send the strength in the gasoline complex to an abrupt halt,” he said.
Brent for May settlement traded at premium to the October contract of $3.78 a barrel today, compared with 52 cents on Jan. 25, amid concern that tension between Western nations and Iran over its nuclear program may curtail supplies. U.S. President Barack Obama and U.K. Prime Minister David Cameron discussed energy supplies without reaching an agreement on releasing reserves on March 14, according to White House Press Secretary Jay Carney.
“In the event of an SPR release, historical price action tells us that policy makers are likely to be met with the intended response from the market,” Lewis said in the report. “History also tells us that the oil curve, specifically Brent, flattens out following the release of SPR crude.”
Participants in the energy market should also sell front- month gasoline contracts and buy later-dated contracts amid signs demand for motor fuel won’t increase, the bank said. Futures for delivery in April were at a premium of 11.2 cents a gallon to July supplies today, compared with a discount of 18 cents on Feb. 29, according to data from the New York Mercantile Exchange.
“Given structural changes in U.S. gasoline-demand dynamics we’re unlikely to see robust demand-growth rates appear anytime soon,” Deutsche Bank said.
The bank also raised its 2012 forecast for European benchmark Brent to an average of $117 a barrel from $115, citing the potential for supply disruptions and tightening spare capacity among the members of the Organization of Petroleum Exporting Countries.
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