U.S. crude futures flipped to a contango structure for the first time since February on Monday, with West Texas Intermediate for January delivery trading at a premium to the December contract in a sign that supply tightness is easing.
The discount for front-month U.S. crude futures against the second-month contract widened to as much as 5 cents during the day. The December contract is due to expire on Wednesday and the market is eyeing more supply.
Under a contango structure, traders are betting oil will fetch a stronger price in the future than current spot prices, justifying the cost of storage.
“We have seen an increase in crude inventories in Cushing, the delivery point of West Texas Intermediate, resulting in a less tight market,” said Giovanni Staunovo, an analyst at UBS.
Stocks at Cushing, Oklahoma, the delivery point for WTI futures, were at 25.2 million barrels at the end of last week, slightly down on the week but recovering from an 11-month low of 22.7 million barrels in mid-September, according to the U.S. Energy Information Administration.
But levels still remain well below the 10-year seasonal average of 42.5 million barrels. Tank storage of below 20 million barrels, or between 10% and 20% of Cushing’s over 94.4 million barrels of operational capacity, is considered close to operational lows.
The flip in U.S. crude futures structure to contango is likely temporary, Staunovo added, pointing to the nearing expiry.
“Spot prices have fallen in recent weeks, resulting in a flatter curve structure,” he said.
U.S. crude futures have been trading below $70 per barrel for the last five sessions, LSEG data showed.
The WTI cash roll, which shows how much traders are paying to roll positions from one month to the next, was trading at a discount of 10 cents a barrel for November versus December on Monday, also in a contango structure, according to Link Data Services.
The rest of the WTI forward curve currently remains in backwardation, where nearer-term contracts trade above later ones, although those spreads are narrowing.
“We probably need the contango to reach a threshold of 10-20 cents per barrel for traders to start kicking around the tires and taking the opportunity to store barrels for the future and capture the contango ” Steven Barsamian, chief operating officer at storage broker, The Tank Tiger.
“Right now we have not seen any uptick in storage demand, but we are seeing the contango potentially widening into the future,” he added.
Macquarie analysts are forecasting the WTI forward curve to be in full contango by the second quarter of 2025, with Brent crude futures trading in the low $60s and WTI in the high $50s per barrel at the front of the curve.
“This current flip in contango is probably temporary but it is on its way to being a more structural feature of the WTI and the Brent markets,” said Vikas Dwivedi, global energy strategist at Macquarie, pointing to a bleak demand outlook for 2025 and ample global supply.
The EIA meanwhile, estimates WTI spot prices to range around $69-$71 and Brent to be around $73-$76 in the second half of 2025 in its latest Short-Term Energy Outlook.
(Reporting by Georgina McCartney in Houston; editing by Richard Chang and Stephen Coates)