- Gennaio 20, 2022
- Posted by: Oliver
- Categoria: Economics, Finance & accounting
The futures market structure
The market structure of all three crude benchmarks, ICE Brent, NYMEX WTI and DME Oman, weakened in December compared with the previous month, suggesting that the optimistic market perception of the supply- demand balance outlook softened. This is mainly due to concerns about the rapid surge in COVID-19 cases to record highs in several major consuming countries, along with the reinstatement of lockdowns and mobility restrictions in some European countries, which darkened short-term oil demand outlooks and weighed on near- month futures prices. However, a continuing decline in global oil stocks and the robust physical crude market kept the market structure in backwardation, while supply disruptions in Ecuador and Libya in December lent some support to the structure. In the first week of January, the futures forward curve steepened on near-term supply risks in the Mediterranean and the Caspian.
The ICE Brent crude futures structure weakened in December, with the ICE Brent first-to-third month spread narrowing by $1.21 to an average of 56¢/b, mirroring fears about a near-term market oversupply. Deterioration in the COVID-19 situation in Europe over the last month and reinstatement of tighter pandemic-related restrictions raised concerns about the demand outlook, adding to lower seasonal demand. However, low commercial OECD oil stocks compared with the latest five-year average and a decline in European oil stocks in November, along with lower supply availability of unsold barrels in the Atlantic Basin, kept the Brent structure in backwardation. ICE Brent’s M1-M6 backwardation also narrowed in December, falling by $2.18 on a monthly average to settle at $1.74/b on average, compared with backwardation of $3.92/b in November.
In the US, the backwardation structure of the NYMEX WTI also eased and the forward curve flattened on concerns over the fast spread of Omicron. First-month prices fell more than forward prices in a sell-off in the first half of the month and an increase in Cushing crude stocks, the delivery point for WTI futures contracts. The NYMEX WTI first-to-third month spread narrowed to a backwardation of 57¢/b on average in December, compared with a backwardation of $1.96/b in November.
DME Oman and Dubai’s backwardation structures also weakened in December, despite healthy crude demand from Asian refiners. Similar to other major price references, prompt-month Asian benchmark contracts came under pressure from worries about lower demand after COVID-19 cases reached record-high levels in several countries. Meanwhile, the authorities locked down a major city in China to curb rising COVID-19 cases. On a monthly average, the DME Oman M1-M3 backwardation weakened m-o-m in December, narrowing by $1.15 to $1.10/b on average, from a backwardation of $2.25/b in November.
The physical Brent market showed a weaker structure in December, despite less supply in the Mediterranean. Regarding the M1/M3 structure, the North Sea Brent M1/M3 spread narrowed in December on a monthly average by $1.67 to a backwardation of 37¢/b, compared with $2.05/b in November. In the US, the WTI M1/M3 backwardation also narrowed in December by $1.28 to 52¢/b, compared with a backwardation of $1.80/b in November. The Dubai M1/M3 backwardation weakened on average in December, narrowing by $1.75 to a backwardation of $1.58/b.