Some recent themes in oil futures markets have returned rather sooner than some expected. Brent is once again trading at a premium to WTI, when the opposite is normally the case. And contango is again strengthening, not long after talk that markets could actually slip into backwardation.
On Thursday both these characteristics were enhanced by a bearish report on US crude oil stocks from the EIA, which included a 20-year-plus record high for the mid-West area.
But do the WTI contango normally correlate to the Brent/WTI premium? Harry Tchiligurian at BNP Paribas says the two are connected – and so are stocks at Cushing, which were last year blamed by some for making WTI a less relevant benchmark:
Tchiligurian says he remained sceptical of backwardation because the factors responsible for it haven’t changed much: oil is still bearish in the short-term, with non-Opec supply expected to rise this year and demand still weak. This in turn encourages continued refinery shut-ins, which correspondents to stocks to remain high, which keep front-month prices relatively low.