The price of Brent oil reached $109.95 per barrel, indicating a significant drop compared to the $118 price prior to the holidays. This price decrease has attracted considerable attention, especially at the start of new trading in the global oil market.
Price Structure Analysis
The previous price of $118 was related to the December 2026 delivery contract, while the new rate of $109.95 is displayed for the January 2027 delivery contract. This price change does not necessarily mean a real drop of more than $8 in a single trading session, and part of this price discrepancy is due to the rollover of the delivery month of the underlying contract.
In oil futures markets, the prices of different contracts are not necessarily the same. For example, when the market faces concerns about short-term supply shortages, oil for nearer delivery may trade at a higher price than oil for later months. This situation is known in commodity markets as "backwardation."
Factors Affecting Oil Prices
This situation causes the change of the underlying contract from a closer month to the next month to reduce the price displayed on the board. This does not mean widespread selling or an actual drop in the price of a specific contract. On the other hand, the price difference between short-term and long-term contracts can reflect traders' expectations about the future state of oil supply and demand, ongoing transportation disruptions, and geopolitical developments.
Therefore, the return of Brent oil prices below $110 should not be solely interpreted as a sign of a more than $8 drop in global oil prices. For a more accurate analysis, comparing the prices of two contracts with the same expiration is essential.
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