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Crude Oil Price Movements

OPEC Monthly Oil Market Report – August 2017

5

The futures market structure

The

contango structure

narrowed in all markets, verging on sustained backwardation, as the oil glut started

to ease. The narrowing contango removed the financial incentive for traders to store barrels, a factor likely

contributing to the drawdown of stocks witnessed during the month. Further declines in US crude stocks are

likely, given the record rates at which US refineries are running, while gasoline demand sparked into life after

a sluggish first quarter. Refinery throughput rose by 123 tb/d to 17.41 mb/d in the week ending 28 July, the

second-highest figure on record, according to the US Energy Information Administration (EIA). Gasoline

product supplies rose w-o-w to 9.84 mb/d, also the second-highest level on record. This shift in the oil

complex momentum came after OPEC officials indicated they would move their focus to limiting exports. The

entire forward curve has flattened for Brent, amid some bullish indicators in the physical market. Crude

differentials strengthened notably for a range of key grades in the Mediterranean, North Sea and West

African markets. A tighter Atlantic Basin could present more export possibilities for US crude producers who

already have their eyes trained on global markets, given the premium that Brent and Dubai enjoy over WTI.

The Dubai M1 59¢/b discount to M3 decreased to 52¢/b. The North Sea Brent M1/M3 discount also

narrowed to 40¢/b on average from around 60¢/b the previous month. In the US, the WTI contango eased by

11¢/b as WTI’s (M1–M3) narrowed further to 34¢/b.

Graph 1 - 4: NYMEX WTI and ICE Brent forward curves

The

ICE Brent/NYMEX WTI spread

widened despite successive weeks of US crude stock draws. Tightening

fundamentals and the clearing of floating storage in the North Sea supported the Brent market. This

somewhat wider spread, coupled by recent multiyear strength in the European sour market, has potentially

opened up arbitrage to send competing US medium sour grades such as Mars and Southern Green Canyon

into Europe. It is clear that the global medium heavy sour crude market has tightened and that US sour

exports have already gained market share in Asia. The first-month ICE Brent/NYMEX WTI spread widened

to $2.47/b, a 12¢/b expansion.

Table 1 - 3: NYMEX WTI and ICE Brent forward curves, US$/b

42

44

46

48

50

52

54

42

44

46

48

50

52

54

1FM 2FM 3FM 4FM 5FM 6FM 7FM 8FM 9FM 10FM 11FM 12FM

US$/b

US$/b

ICE Brent: 26 Jun 17

ICE Brent: 26 Jul 17

NYMEX WTI: 26 Jun 17

NYMEX WTI: 26 Jul 17

Note: FM = future month.

Sources: CME Group, Intercontinental Exchange and OPEC Secretariat.

1FM

2FM

3FM

6FM 12FM 12FM-1FM

NYMEX WTI

26 Jun 17

43.38

43.61

43.84

44.65

45.64

2.26

26 Jul 17

48.75

48.85

48.99

49.30

49.54

0.79

Change

5.37

5.24

5.15

4.65

3.90

-1.47

ICE Brent

26 Jun 17

45.83

46.04

46.28

47.08

48.36

2.53

26 Jul 17

50.97

51.10

51.31

51.82

52.44

1.47

Change

5.14

5.06

5.03

4.74

4.08

-1.06

Note: FM= future month.

Sources: CME Group and Intercontinental Exchange.