By Grant Smith, Bloomberg markets live reporter and strategist

Oil prices may have been confined to a tight range this month, but an array of signals from the physical market suggest the next move could be a break to the upside.

First of all, there are the time-spreads between monthly futures contracts, which have shown a strengthening premium on prompt deliveries over the past six weeks as US driving demand climbs toward its summertime peak. The so-called flat price of crude has lagged behind, pressured by concerns over the global economy, but sooner or later may need to catch up.

The entrenched premium on prompt supplies — known as backwardation — indicates that global oil inventories are depleting at the swift pace anticipated this quarter by forecasters like the International Energy Agency. This is substantiated by a hefty decline in US crude inventories, down by roughly 20 million barrels over the past three weeks.

Cargo trading is adding to the generally bullish picture, with grades in the Mediterranean like Azeri Light climbing substantially, and CPC Blend bid at its highest level in four years. Wildfires in Canada and hurricane season in the Atlantic compound the short-term supply risks. As brokers PVM Oil Associates write today, “the crude bull story is a compelling one.”

Still, there are serious question marks over how much higher any rally could go. Global inventory drawdowns are set to decelerate markedly in the fourth quarter, as China’s economic growth stutters and supplies from across the Americas continues to swell. Forecasters calling for Brent to spike all the way up to $90 a barrel may yet be disappointed.