WASHINGTON: Oil prices near $40 (Dh147) a barrel aren’t the only proof the world is flooded with crude.
The discount on immediate crude supplies in the US has widened to the largest in six months as robust output and imports swell inventories, according to Barclays Plc Spreads between monthly oil-futures contracts are often seen as the most reliable gauge of market conditions, and a discount on the earliest months — known as contango — typically signals that supplies exceed demand.
While the nation’s crude production is forecast to shrink next year, output has only retreated gradually so far as shale explorers maximise efficiency and focus on the most prolific fields. Inventories are filling so fast that a growing fleet of tankers is waiting to unload at terminals on the Gulf Coast.
“The world is floating in oil, with land storage volumes at record levels and increasing queues of ships waiting to unload,” said David Hufton, managing director at broker PVM Oil Associates Ltd. in London. “If land storage is close to full, the only option is storage at sea.”
Thirty-nine ships capable of holding 28.4 million barrels of oil are waiting near Galveston, Texas, compared with 30 in May, according to vessel-tracking data compiled by Bloomberg. Ships are waiting an average of five days, up from three days in May. Tankers often anchor at Galveston before delivering cargoes to refineries at Houston and other nearby plants.
Front-month contracts of US benchmark West Texas Intermediate traded for as much as $1.29 a barrel less than second-month futures on Monday. December futures were at $41.48 a barrel on the New York Mercantile Exchange and January futures at $42.71 as of 11:46 am London time. The gap reached $1.39 a barrel on November 13, the widest intraday spread since April 29.
US stockpiles climbed to 487 million barrels in the week to November 6, the most for the time of year in more than 80 years, according to the Energy Information Administration. Inventories at Cushing, Oklahoma, the delivery point for WTI and the biggest oil-storage hub in the US, expanded by 2.24 million barrels. Oil output rose by 25,000 barrels a day to 9.19 million a day.
Spreads are starting to resemble the “super-contango” that developed in 2009 and enabled oil traders to profit from stockpiling crude for later sale, according to Commerzbank AG.
“The possibility of a super-contango is returning,” Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt, said by e-mail. “With US shale and non-Opec supply overall demonstrating unexpected resilience, we are still in an extremely oversupplied market despite a very strong uptick in demand. And contango at these levels only stimulates further build-ups of inventories.”
