For the first time since September, the front-month Brent futures curve has flipped into contango suggesting notable physical supply being added (driving the front-month below the curve) - a sure sign of an oversupplied market.

Despite oil’s surge to near $80 a barrel, some corners of the market that reflect the trading of actual barrels are weakening fast.

That’s in part because for the coming months cheaper U.S. crude is set to flood across the Atlantic, while demand for Brent grades from traditional buyers in Asia has been muted, according to Citigroup Inc. analyst Chris Main.

Oil refiners have plenty of crude at hand right now, with unsold cargoes in north-west Europe, the Mediterranean, China, and West Africa, according to physical traders who asked not to be named discussing market movements.

As Bloomberg reports, for weeks, physical oil traders wondered whether the weakness in the physical oil market could bring down the paper -- or derivatives -- market. Add seasonal refinery maintenance and the combination has "barrels without a home, creating a prompt overhang," said Amrita Sen, chief oil analyst at Energy Aspects Ltd. in London.

As Barclays analyst Michael Cohen wrote in a report this week:

“Barring further disruptions our balances suggest a steady correction from these highs over this year and next." “Some indicators are already not so positive. Brent time-spreads and CFDs have moved sharply lower. ICE gasoil time-spreads have also been trending lower”

And that is what is happening.