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The Crude Oil Futures Market Structure

Source: OPEC 10/23/2012, Location: Europe

The Nymex WTI contango structure widened slightly over the month despite a decline in stocks at Cushing, Oklahoma, which fell to their lowest since April during the last week of September. Cushing is the delivery point for the Nymex crude futures contract. The spread between the first and second month contract was around 35˘/b, 5˘ wider than the previous month. Meanwhile, growing shale production from Eagle Ford and Bakken, as well as higher oil sand inflows from Canada and a lack of adequate outbound pipelines from the Cushing storage hubs, have forced the WTI market to remain in contango for years. Despite the tight North Sea supply due to filed maintenance in September, particularly work at the Buzzard field, the ICE Brent market structure backwardation narrowed. Many cargoes of North Sea Forties crude, which sets the Brent benchmark, have been delayed due to lower-than expected output.

However, seasonal maintenance at European refineries has kept demand muted, counter balancing the prompt supply shortages. On average, the spread between the first and the second month of the ICE Brent contract averaged around 65˘/b in September compared to about $1.15/b in August.

The transatlantic (Brent vs. WTI) spread remained record wide in September on the back of ongoing maintenance-related supply issues that continue to strengthen the Brent side, relative to WTI. By the end the month, and as the Brent market continued to be supported by the several loading delays, the spread stood at over $20/b. On average, the front month ICE Brent/Nymex WTI spread was at $18.50/b, unchanged from the previous month.

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