Oil curve is flattening as spot rises more than future. Oil market has been in a contango for several quarters now, which led to producers hedging their future production along the curve, which largely improved their margin. Hedging production into the future and storing oil in tankers for better future might be contributing to temporary, minor shortage in the spot market, which accompanied with decision by OPEC and non-OPEC producers agreeing to a production freeze.

But current diminished contango, provides lesser incentive to store oil for future.

Chart from ERC shows how the curve has shifted up much more for frontal month. Much of the rise came with rise in crude oil prices since 11th February. Still oil market is a bit far from backwardation, where spot prices are usually higher than future prices, indicating a shortage in the present.

This major move is quite significant as it might be indicating that the supply in the present might be easing. With OPEC and non-OPEC agreement on production, spot market is now more vulnerable to price shocks. Moreover, hedge fund betting in favor of higher prices along with producers hedging at far end of the curve might have contributed to this sharp retracements.

Brent is currently trading at $39.7/barrel at $2/barrel premium to WTI.