En Español

Very usefull links


News links




Dow Jones

Oil price



Views and News





Backwardation beckons for WTI as crude stocks fall - Kemp




By John Kemp

Petroleumworld 10 25 2017

U.S. crude prices appear set to follow the international Brent benchmark from contango into backwardation in the next few months as oil inventories in the United States dwindle.

U.S. commercial crude stocks have fallen by 23 million barrels since the start of the year, compared with an increase of 19 million barrels at the same point in 2016, and an average seasonal rise of 24 million barrels in the last decade.

U.S. light sweet crude (WTI) futures for the contract nearest to delivery closed at a discount of just 28 cents per barrel to the seventh-listed contract on Monday.

The front-month discount was the smallest since November 2014, when the oil market was only just entering its two-year slump ( tmsnrt.rs/2y0QYg3 ).

Discounts for near-to-maturity futures contracts, known as contango, are a symptom of an oversupplied market with high inventories.

By contrast, premiums for nearby contracts, known as backwardation, are associated with an undersupplied market and low stocks.

Both Brent and WTI have been moving away from contango towards backwardation for more than two years as part of the market rebalancing process.

Brent futures first moved into backwardation in August and have been trading consistently in that condition since September.

But the price structure in WTI, which normally follows Brent, albeit loosely, temporarily disconnected in August and September.

WTI fell to a steep discount against Brent and remained stuck in contango, which deepened when Hurricane Harvey stopped many U.S. refineries processing crude and left the country with a build up in crude stocks.

However, U.S. crude exports have been running at record rates since the middle of September, according to data from the U.S. Energy Information Administration (EIA).

With crude imports remaining sluggish, net crude imports have fallen to less than 6 million barrels per day from almost 8 million barrels per day in August.

At the same time, U.S. refineries have been processing record seasonal volumes of crude to rebuild stocks of gasoline and especially diesel depleted by the hurricane and strong consumption at home and in export markets.

As a result, crude stocks along the East, West and Gulf Coasts have all fallen since the summer, are well below last year's levels and appear tight.


In contrast to the coasts, however, the Midwest has reported a continued build up in crude stocks, especially around Cushing, Oklahoma, the delivery point for the WTI futures contract.

Cushing stocks have increased in 10 out of the last 11 weeks, by a total of more than 8 million barrels, according to the EIA ( tmsnrt.rs/2y20zTG ).

Meanwhile, in the rest of the country, crude stocks have fallen in eight out of the last 11 weeks, by a total of almost 36 million barrels.

Plentiful crude at Cushing has ensured WTI prices for maturing futures contracts have continued to trade at a discount.

But as refinery runs and exports empty coastal tank farms, the Midwest crude glut should gradually start to clear.

Cushing inventories rose by just 200,000 barrels in the week to Oct. 13, the smallest increase since the middle of August, and a possible sign that stocks in the region are peaking.

WTI calendar spreads have also strengthened, and now seem to be gradually reconnecting with Brent, another sign that Cushing inventories may be peaking.

WTI futures prices are still trading in a significant contango between December and February, but thereafter the contango becomes insignificant, and the market is in backwardation beyond April.

WTI appears to be following the same path beaten by Brent earlier this year towards a sustained backwardation in 2018.

Story by John Kemp; Editing by Edmund Blair from Reuters.

reuters.com 10 24 2017

We invite all our readers to share with us
their views and comments about this article.
Write to editor@petroleumworld.com

By using this link, you agree to allow PW
to publish your comments on our letters page.

Any question or suggestions,
please write to: editor@petroleumworld.com

Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8,10 +/ 800x600 pixels

Nov 13-14 ;
Mexico City, Mexico






Contact: editor@petroleumworld.com,

Editor & Publisher:Elio Ohep/
Contact Email: editor@petroleumworld.com

CopyRight © 1999-2016, Paul Ohep F. - All Rights Reserved. Legal Information

PW in Top 100 Energy Sites

CopyRight©1999-2017, Petroleumworld   / Elio Ohep - All rights reservedThis site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission fromPetroleumworld or the copyright owner of the material.