Brent recovers from sub-$100 dip

Europe’s Brent crude briefly dropped through the $100 a barrel floor for the first time since 8 February, settling at $99.79 a barrel on 4 October as the region’s debt crisis continues to keep pressure on prices.

The drop was mirrored in the US, with West Texas Intermediate (WTI) dropping $1.94 to $75.67 a barrel. The spread between the benchmarks remains wide at $24.12.

It didn’t last long however. Morning trades soon saw Brent crude prices back over $100 a barrel.

According to the UK’s Barclays Capital, while demand is weakening, prices have been maintained since supply side shortages have been greater.

“Even with some Libyan volumes trickling into the market, the structure of the curve remains in strong backwardation, continuing to signal a fundamentally tight market”, says analysts at the bank in their latest report.

A backwardated market, for those unfamilar with commodities analyst jargon, is when future contracts trade below spot or current prices, resulting in a backward sloping curve.

They go on to say supply has disappointed in almost all key production centres across the world, with the only variation being who was the worst performer from a long list of familiar names. Libya, Iraq and Yemen are just a few producers who have seen production disupted recently, among others.

On the demand side, news from the US, the world’s largest oil consumer isn’t particularly encouraging. Ben Bernanke, the chairman of the Federal Reserve described the country’s economy as “close to faltering”. The question is therefore whether supply will continue to fall faster than demand or whether demand will drop off a cliff as the global economy lurches closer to another recession.