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High Storage Levels Point To Lower For Longer

Friday, February 12, 2016

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. Contango widens again

 

- The oil market contango is back. A contango is a phenomenon in which front-month oil contracts are cheaper than oil delivered at some point in the future. A contango illustrates the near-term state of oversupply, as producers can’t find enough buyers for their crude today.
- The contango for Brent and WTI grew in recent weeks. The gap between front-month and year-ahead contracts – often called the 13th-1st month futures spread – increased to $7.75 per barrel in January for Brent, the highest in almost a year.
- But in February, the contango expanded even more. The WTI 13th-1st jumped to over $11 per barrel.
- A couple of takeaways: the rising contango is an effect of deeper state of oversupply. Storage is running low in key parts of the U.S., forcing near-term prices to suffer larger discounts.
- Also, floating storage becomes economical somewhere around $10 to $12 per barrel. More companies will be stashing oil at sea if the contango sticks around. Glencore, the mining giant, said in late January that it is storing oil at sea off the coast of Singapore.

2. Storage levels continue to grow

(Click to enlarge)

-…




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