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Crude Oil Price Movements

OPEC Monthly Oil Market Report – November 2017

5

Brent

futures first moved into backwardation in

August and have been trading consistently in that

structure since September. But the price structure

in WTI, which normally follows Brent, albeit loosely,

has disconnected since August.

The

Dubai

market structure has been in

backwardation since August, signalling strong

demand for spot cargoes. Differentials for some

Middle Eastern crudes reached their highest

premiums against Dubai in months. This sustained

backwardation has enticed further commercial

refinery crude stock draws in China, a trend that

has continued since August. This steep

backwardation in Dubai structure is pushing OSPs

higher for all Middle Eastern crudes.

Graph 1 - 4: ICE Brent forward curves

NYMEX WTI

remained stuck in contango, which

deepened when Hurricane Harvey stopped many

US refineries processing crude and left the country

with a build-up in crude stocks. However, US crude

exports have been running at record rates since the

middle of September, according to data from the

EIA. Crude imports remained sluggish, falling to

around 7.1 mb/d from almost 8 mb/d in August. At

the same time, US refineries have been processing

record seasonal volumes of crude to rebuild stocks

of gasoline and especially diesel, depleted by the

hurricane and strong demand at home and in

export markets. As a result, crude stocks along the

East, West and Gulf Coasts have all fallen faster

since the summer and are well below last year’s

levels.

Graph 1 - 5: NYMEX WTI forward curves

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 mb, according to the EIA, while, in the rest of the

country, crude stocks have fallen in eight out of the last 11 weeks, by a total of almost 36 mb. Plentiful crude

at Cushing has ensured that 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. 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.

The North Sea Brent M1/M3 56¢/b backwardation strengthened to 59¢/b, up by 3¢. The Dubai M1 25¢/b

premium to M3 doubled to 50¢/b, improving 25¢. In the US, the WTI contango decreased by 32¢ as WTI’s

(M1-M3) narrowed to 48¢/b.

The NYMEX WTI crude front-month discount to ICE Brent increased to $6.05/b, its largest since mid-2015,

keeping US crude as the most attractive grade for arbitrage into both Europe and Asia. Higher Cushing

stocks hit WTI and pressured prices, while Brent prices were boosted by tighter supplies due to the

OPEC and non-OPEC output adjustment and higher demand amid favourable refining margins.

54

56

58

60

1FM 3FM 5FM 7FM 9FM 11FM

US$/b

ICE Brent: 25 Sep 17

ICE Brent: 25 Oct 17

Note: FM = future month.

Sources: Intercontinental Exchange and OPEC Secretariat.

51

52

53

1FM 3FM 5FM 7FM 9FM 11FM

US$/b

NYMEX WTI: 25 Sep 17

NYMEX WTI: 25 Oct 17

Note: FM = future month.

Sources: CME Group and OPEC Secretariat.