Oil Advances Most in a Month With Key Oil Spreads Surging

An oil well pump jack operated by Chevron Corp. in San Ardo, California, U.S. (Photographer: David Paul Morris/Bloomberg)

Oil Advances Most in a Month With Key Oil Spreads Surging

Oil jumped by the most in a month amid a weaker dollar and as key timespreads surged with expectations for further supply declines at the biggest storage hub in the U.S.

Futures in New York climbed 2.8% on Monday to the highest since 2018 and its global counterpart Brent neared the key, psychological $75-a-barrel mark. U.S. equities rose and the dollar dipped, boosting the appeal of commodities priced in the currency. Investors are watching commentary from Federal Reserve officials this week after St. Louis’s James Bullard said interest rates may need to rise in 2022.

U.S. oil timespreads strengthened, indicating a tighter market. West Texas Intermediate crude’s prompt spread -- a gauge of market health -- moved into the deepest backwardation structure since 2018. Spreads further along the curve rallied to the strongest in about seven years. Data-provider Genscape Inc. reported a 2.6 million-barrel-drop in stockpiles at Cushing, Oklahoma, last week, according to people with knowledge of the report. Inventories at the hub are already at the lowest since March 2020.

“The stars have aligned here in favor of the bulls in a big way,” said John Kilduff, a partner at Again Capital LLC.

Oil Advances Most in a Month With Key Oil Spreads Surging

U.S. crude futures are up more than 10% so far this month as major economies emerge from restrictions and lockdowns after the rollout of Covid-19 vaccinations. Consumption has rebounded, especially in the U.S., Europe and parts of Asia. By August, global oil demand may exceed the record 100.8 million barrels a day reached in August 2019 due to pent-up demand for leisure activities, according to Citigroup Inc. Meanwhile, Bank of America Corp. said futures may hit $100 a barrel next year.

“With continued expectations of fairly significant rebound in demand in the second half and a very well-disciplined OPEC+, it looks like, at least for the time being, we’re probably going to get more tightness,” said Bart Melek, head of commodity strategy at TD Securities.

Prices
  • West Texas Intermediate for July delivery rose $2.02 to settle at $73.66 a barrel on the New York Mercantile Exchange.
  • Brent for August settlement climbed $1.39 to end the session at $74.90 a barrel on the ICE Futures Europe exchange.

Beyond WTI’s prompt spread, other calendar spreads rallied, signaling longer-term strength. WTI’s September contract traded more than $1 above its October contract, the deepest backwardation -- where near-dated prices are more expensive than later-dated ones -- since 2014.

Traders are also watching the status of discussions between Iran and other nations. So far, nuclear talks have been inconclusive between world powers and Iran -- which has elected a new hardline president -- allaying prospects for a swift revival of the Islamic Republic’s crude exports.

Diplomats adjourned a sixth round of meetings with significant gaps remaining to mend the Iranian nuclear accord, the third time since talks began in April that negotiators have missed self-imposed deadlines to rejuvenate the agreement. Ebrahim Raisi, the president-elect, also ruled out a meeting with U.S. President Joe Biden.

The failure to clinch a deal puts additional pressure on other members of the OPEC+ coalition, which meets next week to consider restoring more oil output.

Other market news:
  • Obscure oil company Torchlight Energy Resources Inc. saw its shares more than double in a week after it became the latest stock touted on Reddit as a possible short squeeze.
  • A key oil refinery for U.S. East Coast consumers is halting operations after escalating environmental scrutiny made it impossible for backers to obtain desperately needed financing. The owners of the Limetree Bay refinery in the U.S. Virgin Islands announced plans Monday to shut the 200,000-barrel-a-day facility and dismiss more than 250 workers just weeks after a federal crackdown over a series of pollution incidents.
  • Crude storage tanks that were brimming a year ago are beginning to empty in the main U.S. distribution hub, the latest indication of rising demand in the world’s biggest oil-consuming country.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.