US oil prices shot to a 12-week high today in a second day of frenetic spread trading, with dealers racing to claw back a record discount versus Europe’s Brent as they gave in to evidence of tightening supplies.

While signs of euro zone discord and gloomy US consumer confidence hurt Brent and other risk markets ahead of tomorrow’s pivotal European Union leaders meeting, many traders focused more on the dramatic twist in the US market’s structure and the collapse in the Brent/WTI spread, which has sunk more than $US6 in three days to its narrowest since July.

The market’s shift continued to deepen into a structure known as backwardation, where prompt futures are costlier than forward prices.

The spread between December 2011 and December 2012 futures surged from minus $US1.65 a barrel on Friday to $US2.20 today, an unprecedented inversion that signals a key shift in mind-set toward a much tighter near-term market.

The heavy selling that drove trading volumes on Tuesday to their highest since February had subsided overnight, with some spreads easing off the day’s highs even as traders struggled to pinpoint what had set off one of the most violent reversals in key spreads in recent history.

"Brent’s spread against WTI fell so hard so fast that it looked overdone, so near the close, it recovered a little bit, with no fundamental news behind it," said Mark Anderle, trader at TAC Energy in Dallas, Texas.

The collapse in the Brent/WTI spread and abrupt reversal from contango – which had prevailed since the 2008 financial crisis – appeared to stem from a sudden yielding to weeks of growing signs that US midwest oil supplies were tightening – something that many analysts had been pointing out for weeks.