Despite politicians' repeated calls for increased crude supplies to cool global oil prices, traders of European physical crude oil suspect their markets are currently suffering from too much supply, not too little.

As investors snap up crude oil futures, sending prices to record highs in the process, a burgeoning physical supply picture has left crude oil cargoes in the spot market languishing at depressed levels.

"The physical market doesn't look great, but the (futures) price is something completely different," said a crude oil trader based in London. "Everyone wants to own commodity futures."

Now, even the price structure of crude oil futures is starting to reflect an easier short-term supply outlook, participants said.

Futures prices for ICE Brent crude for the coming months have recently flipped into what's known as a contango structure - where contracts are priced incrementally higher for delivery dates further into the future.

"I think there are two different dynamics in the crude oil market," said Olivier Jakob, managing director of Swiss consultancy Petromatrix Wednesday. "We're making record highs after record highs on the (futures) price - but physical economics are not really showing any signs of distress. The structure of the market is seeing some fundamentals creeping in."

Prompt, or near-term, prices are also being weighed down by a glut of crude cargoes in the Middle East, North Sea and Russia.

Refining companies that buy crude oil have been sidelined by seasonal refinery maintenance and poor margins for gasoline and fuel oil.

On Wednesday, Iran's departing OPEC governor, Hossein Kazempour Ardebili, told Dow Jones Newswires that around 25 million barrels of the country's heavy crude oil is being stored in 10 to 12 offshore vessels in the Persian Gulf.

The stored crude is "the main proof that the market is oversupplied" and that futures prices are disconnected from fundamentals, he said.

In the market for benchmark North Sea crude, a contract linking futures and physical markets was also reflecting an unprecedented divergence between the two markets.

The June exchange-of-futures-for-physical contract, or EFP, which allows holders of Brent crude futures to swap the contract for physical crude, fell to a record -78 cents Monday, according to energy pricing agency Platts. This compares to +5 cents a month earlier. The sharp decline in the EFP value represents extremely low demand for physical delivery of North Sea crude.

EFP is "very weak overall... June and July cash (crude) is ultra weak," said an oil trader based in London.

In the market for Russian Urals cash crude oil, cargoes have traded at a $5.10 discount to the benchmark quotation Dated BFOE.

The Dated benchmark is used in pricing over 60% of the world's crude oils and is comprised of a basket of North Sea crude oil grades - Brent, Forties, Oseberg and Ekofisk.

Urals prices could sag even further in the coming months after Middle Eastern producers lowered prices for their crude oil grades, another trader said.

"There's various signals out there saying for right now, the markets are well supplied with crude," said Mike Wittner, global head of oil research at Societe General in London.

But few participants think oversupply in the spot market will keep futures prices from continuing their relentless surge.

"There seems plenty of product around for now, but people are still long-term very bullish," an energy broker in London said.

And while the price difference between prompt contracts and those for delivery further into the future has widened, absolute price levels are still high - ICE Brent crude futures settled no lower than $119 a barrel across the futures curve Wednesday.

"The structure is telling you there is a little more crude available today than there is tomorrow, but the absolute level is saying the market is still tight," said Harry Tchilinguirian, senior oil market analyst at BNP Paribas in London.

Copyright (c) 2008 Dow Jones & Company, Inc.