The premium for front-month U.S. crude oil futures over the second-month contract widened to its highest since October on Wednesday, LSEG data showed, as stocks at the WTI delivery point, Cushing, Oklahoma, fell last week to a three-month low.
The market structure called backwardation means investors can sell their oil at a higher price in the spot market, rather than for less profit next month, a sign that supply is tighter.
WTI crude futures for August delivery settled at $82.85 per barrel on Wednesday, while the September contract settled at $81.44 per barrel, creating a $1.61 premium for prompt barrels.
“The backwardation is likely driven by last weeks’ drop in crude inventories at Cushing, the delivery point of WTI,” said UBS analyst Giovanni Staunovo.
“The stronger backwardation indicates in my view market participant expecting further inventory declines in Cushing,” he added.
Crude stocks at the Cushing hub, excluding strategic petroleum reserve (SPR) barrels fell by 875,000 barrels to 32.66 million in the week to July 12, hitting their lowest point since April, the U.S. Energy Information Administration said on Wednesday.
Overall U.S. crude inventories excluding SPR barrels fell by 4.87 million barrels to 440.23 million barrels. They have declined for three straight weeks, by a total of 20.47 million barrels since June 28.
(Reporting by Georgina McCartney in Houston; editing by Liz Hampton and Richard Chang)