Key oil market indicators in the United States suggest an oversupply, signaling an impending global surplus.
On Monday, the prompt spread for oil futures traded in negative territory for the first time since February. This reflects a bearish market structure known as Contango, indicating an ample short-term supply. The spread closed at a one-cent discount after reaching a low of five cents per barrel.
As the International Energy Agency (IEA) warns of a potential supply glut exceeding one million barrels per day, traders are closely monitoring the market balance heading into 2025.
The IEA also notes that inventories could expand even further if the Organization of the Petroleum Exporting Countries (OPEC) and its allies increase production next year.
Despite these warnings, the broader U.S. crude futures curve remains in a slightly bullish backwardated structure, suggesting tighter supply expectations over the long term.
While crude inventories in Cushing, Oklahoma, remain aligned with recent seasonal norms, U.S. crude oil production continues to rise, exceeding 13 million barrels per day.
At the same time, oil consumption in China, the world’s largest crude consumer, has declined for six consecutive months through September, adding to concerns about demand.
The implications of Contango extend across both financial and physical markets.
For those with access to storage facilities, a persistent and pronounced Contago presents opportunities to profit by storing oil and selling it later at higher prices. In financial markets, however, this structure leads to a “negative roll yield,” where investors incur losses when rolling their positions forward.
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