Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Next Crude Oil Price Rally? Futures Say Market Is Tightening

Commodities / Crude Oil Mar 01, 2017 - 12:10 PM GMT

By: OilPrice_Com

Commodities

U.S. oil inventories are at record levels, but there are a few glimmers of hope that the glut could be starting to subside.

Storing crude oil for sale at a later date is no longer profitable, as the futures curve has flattened out in recent weeks, depriving traders of a strategy that has served them well over the past few years. The market “contango,” in which front-month oil contracts trade at a discount to oil futures six months or a year out, has all but vanished. The differential must be large enough to cover the cost of storage, and for many time spreads that is no longer the case. After three years of a steep contango, storing oil simply to take advantage of the time spreads is increasingly uneconomical.


One of the more expensive forms of storage is floating on tankers at sea, and because of the narrowing contango, floating storage is unprofitable today. Reuters reports that traders are beginning to unload crude from floating storage along the Gulf Coast. "Right now, traders aren't incentivized (to store)," Sandy Fielden, director of oil and products research at Morningstar, told Reuters in an interview. "It won't all stampede out of the gate, but inventory levels will come down. What will happen is that some of it will go to refineries, but a fair amount will be exported too."

Just as the rapid rise of floating storage in 2015 and 2016 was a sign of the deepening global supply imbalance, draining tankers of stored oil is an early sign that the supply glut is receding.

So far, it is only the most expensive storage facilities that are seeing drawdowns – the U.S. on the whole has seen crude stocks swell to record highs. But oil analysts argue that the surge in crude inventories is a symptom of stepped up imports booked at the end of 2016, when OPEC members pumped out huge volumes of crude just ahead of implementation of their deal to cut production. After a few weeks of transit time, the extra supply started showing up in U.S. storage data in January and February. In other words, the stock builds could be a temporary anomaly.

More recently, the time spreads for Brent futures also indicate increasing tightness in the market. John Kemp of Reuters notes that the spread between futures between April and May has sharply narrowed this month, meaning that the market is betting on a supply deficit as we move into the second quarter. The spreads for May-June and June-July are even smaller, trading at a few cents per barrel. This is a complicated way of saying that there isn’t a way to make money by buying oil, paying for storage, and selling it at a later date.

In a separate report, Reuters notes that inventories are also starting to drawdown in Asia, adding further evidence that the glut is not as bad as feared. As OPEC has throttled back on production, Asia is starting to see the impact. Reuters says that unusually large drawdowns took place across key oil hubs in Asia – 6.8 million barrels of oil were withdrawn from tanker storage off of Malaysia’s coast while Singapore saw a 4.1 million barrel decline and Indonesia’s storage fell by 1.2 million barrels.

"Dancing contango is now not a profitable thing to do, so we've sold out," an oil trading manager told Reuters. The trader no longer stores oil on tankers because of the disappearing contango.

The details of the contango and the oil futures market may seem complex and arcane, but the shift in time spreads is exactly what OPEC has been targeting with its supply cut. By cutting near-term supply, OPEC has succeeded in changing the economics of oil trading, forcing inventories to draw down. That could cause a short-term supply problem as oil is unloaded from storage, but in the long run OPEC needs to drain that excess supply from storage tanks around the world in order to spark higher prices.

Traders are more and more confident that the oil market will experience tighter conditions as we move into the second quarter, a bet that is reflected in both the time spreads and the exceptional buildup in bullish positions on crude oil. The oil price rally is not without its risks – very notable risks that have been covered in previous articles – but for now, the futures market is offering investors and traders some reasons for bullishness.

Link to original article: http://oilprice.com/Energy/Energy-General/Next-Oil-Rally-Futures-Say-Market-is-Tightening.html

By Nick Cunningham

© 2017 Copyright OilPrice.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

OilPrice.com Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules