MOMR September 2017
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Crude Oil Price Movements

OPEC Monthly Oil Market Report – September 2017

5

The futures market structure

The global oil market

contango structure

continued to ease, particularly in Brent, which flipped into

backwardation for the first time since it slumped into contango in the second half of 2014 when the oil market

became oversupplied. This is due to the shooting up of demand for prompt-loading barrels, and amid

increasing sentiment that the oil market will rebalance over the next year with a major drawdown in crude

and product stocks. This first stirring of backwardation since oil prices were above $100/b is seen as sign of

tightening supplies and strong demand. It should also encourage those who have held physical crude in

storage during the oil glut to sell barrels into the market as it is no longer profitable to hold them.

Furthermore, the entire Brent forward curve continued to flatten and the back end is in backwardation.

Meanwhile, the contango in Dubai is almost flatt, buoyed by robust demand for spot crude in Asia and lower

supplies due to the OPEC production adjustment agreement. WTI remained in the same light contango over

the month on average, despite consecutive weeks of inventory draws.

The Dubai M1 52¢/b discount to M3 decreased to 9¢/b, contracting by 44¢. The North Sea Brent M1/M3

40¢/b contango flipped into a backwardation of 30¢/b, a 70¢ improvement. In the US, the WTI contango was

almost unchanged as WTI’s M1/M3 widened by 2¢ to negative 35¢/b.

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

The

ICE Brent/NYMEX WTI spread

widened significantly to near $4/b despite consecutive weeks of

US crude stock draws. Healthy demand for distillate and gasoline-rich light sweet crudes, tightening

fundamentals and the clearing of floating storage in the North Sea continue to support the Brent market. The

larger Brent/WTI spread has widely opened arbitrage trade from the US to Europe and Asia. US exports

stayed elevated at 0.9 mb/d. Although this record high should have helped narrow the WTI-Brent spread,

Tropical Storm Harvey will prevent this from happening, as refinery outages will weigh on Cushing balances

while strengthening those of Brent, further widening the spread. The first-month ICE Brent/NYMEX WTI

spread widened to $3.81/b in August, a $1.34 or 2.57% expansion.

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

46

48

50

52

54

46

48

50

52

54

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

US$/b

US$/b

ICE Brent: 25 Jul 17

ICE Brent: 25 Aug 17

NYMEX WTI: 25 Jul 17

NYMEX WTI: 25 Aug 17

Note: FM = future month.

Sources: CME Group, Intercontinental Exchange and OPEC Secretariat.

1FM

2FM

3FM

6FM 12FM 12FM-1FM

NYMEX WTI

25 Jul 17

47.89

48.02

48.19

48.68

49.09

1.20

25 Aug 17

47.87

48.12

48.34

48.83

49.15

1.28

Change

-0.02

0.10

0.15

0.15

0.06

0.08

ICE Brent

25 Jul 17

50.20

50.36

50.59

51.18

51.95

1.75

25 Aug 17

52.41

51.98

51.89

52.07

52.46

0.05

Change

2.21

1.62

1.30

0.89

0.51

-1.70

Note: FM= future month.

Sources: CME Group and Intercontinental Exchange.