Oil rebounded as a widening discount for front-month crude against futures for later delivery prompted purchases of the contract.

The price of oil on the Nymex for June delivery is $3.66 a barrel lower than for July, narrowing for the first time since April 29. Yesterday, the spread between the contracts rose to $4.50, the widest divergence between front month contracts since Feb. 12, 2009. This contango has encouraged investors to hold supply for future delivery.

“The spread just got too wide,” said Addison Armstrong, director of market research at Tradition Energy, a Stamford, Connecticut-based procurement adviser. “It got so wide that speculators saw value in the front contract and jumped in.”

Crude oil for June delivery rose 12 cents to $75.77 a barrel at 1:29 p.m. on the New York Mercantile Exchange. Futures touched $73.62, the lowest level since Feb. 12. Prices are down 4.5 percent this year.

Brent crude oil for June settlement declined $1.01, or 1.2 percent, to $80.19 on the London-based ICE Futures Europe exchange. Brent, usually cheaper than Nymex futures, is trading at a $4.42-a-barrel premium.

“It’s like someone just switched a switch,” said Tom Bentz, a broker at BNP Paribas Commodity Futures Inc. in New York. “The June contract was the weakest thing on the board against everything. There were a lot of shorts out there. We started to rally, got above $75, and the shorts had to run.”

Source: Bloomberg Businessweek