Crude Oil Futures Market Structure

Source: OPEC 11/29/2011, Location: North America

Nymex WTI flipped into backwardation for the first time in three years on consecutive, larger than-expected draws in US crude oil inventories, particularly on the US mid-continent, amid high refinery runs and low imports. Front-month WTI rose 13˘ on 24 October, the first time that the front of the curve switched to backwardation since early September 2008. The move aligns WTI more closely with the North Sea forward structure that has been in backwardation since late March. The increasing capacity to move crude away from Cushing supported the restructuring as some Canadian grades were diverted elsewhere. The completion of new storage capacity at Cushing also eased the prolonged high inventory levels. The Nymex front month moved to a 13˘/b premium to the second month contract from a 7˘/b discount.

The ICE Brent forward curve flattened somewhat in October from the previous month’s steep backwardation amid a rise in supply from Libya, major North Sea fields and West Africa, which depressed the North Sea market amid low refinery demand. The Brent forward curve remained in steep backwardation for most of October before easing on 17 October by almost $1/b. However, for the whole month, the spread between the second and the first month averaged around $1.50/b, unchanged from September.


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