Contango in WTI and Brent crude futures widened in midmorning trading Thursday as the market eyed a growing global supply glut.
Prompt-month NYMEX WTI futures were trading a around 18 cents/b below second-month levels Thursday morning, but at a steep 2.12/b discount compared to month 12 prices.
Prompt ICE Brent contracts were also holding around 18 cents/b below second-month levels and 19 cents/b under 12-month prices.
US inventory builds, especially at the delivery point of the NYMEX crude contract in Cushing, Oklahoma, has pushed the forward curve into contango since mid October. But the collapse in the one-year spread has been acute. The prompt-month/12-month WTI spread settled at a 22 cent/b backwardation as recently as October 26. This backwardation was as wide as $1.90/b this time last month.
"Simply put, abundant supplies of crude, both foreign and domestic, are now bidding for storage space. This is a complete and total reversal of what was happening and there seems to be, at this point, nothing that shall reverse this trend," Gartman Letter publisher Dennis Gartman said in a morning note.
NYMEX December WTI was down 48 cents at $61.19/b and ICE January Brent was 44 cents lower at $71.63/b.
US commercial crude supply expanded for a seventh consecutive week, growing 5.78 million barrels to 431.79 million barrels during the week ended November 2, US Energy Information Administration reported.
Crude prices rose to four-year highs in early October amid market concerns of tighter supply in the wake of US sanctions on Iran, which went into effect Monday. But these supply concerns have ebbed in light of stepped up production from the US, Saudi Arabia and Russia, as well as Washington's capitulation to demands for sanctions relief from several major buyers of Iranian crude.
This week EIA revised its US production forecasts higher to 10.9 million b/d in 2018 and 12.06 million b/d for 2019. Last week US production rose to a fresh all-time high of 11.6 million b/d, EIA data showed.
Saudi Arabia production tested all-time highs at 10.7 million b/d in October, a 700,000 b/d increase from May levels, and Russia reported Friday that it hit an all-time high of 11.41 million b/d, up about 440,000 b/d from May.
Concurrently with the build out in global supply, this week Washington issued sanctions waivers to eight importers of Iranian crude, further mitigating the impact of the re-imposed sanctions on oil prices.
Products futures were mixed as the market pulled back from yesterday's reactionary positions in the wake of the EIA data release.
NYMEX December RBOB was up 1.32 cents at $1.6606/gal. RBOB settled 4.66 cents lower on Wednesday following a surprise 1.85 million barrel EIA-reported build in inventories last week. But NYMEX December ULSD gave back most of yesterday's gains and was 4.66 cents lower at $2.1905/gal.
