By Robert P. Balan, Senior Market Strategist, Diapason Commodities Management
The crude oil market has become almost like a surrealist Dali painting — it just seems all warped, distorted and twisted out of shape. Here are some examples: do you want crude oil delivered in the future, say a year from now? You can have your pick. If you want West Texas Intermediate (WTI) crude, get ready to pay up substantially higher– crude has jumped almost $15 in the past 8 trading days after it became apparent that the U.S. economy was not at risk of falling into another recession soon, and the eurozone might be finally getting its act together.
And not only that — WTI oil for delivery in a year from now costs about $2.20 more per barrel. The market is in contango, a sign of semi-plenty current supply, so there is a storage premium embedded in the price structure.
However, if you want Brent crude oil, you are actually in luck. Yes, it is more expensive and yields less energy, (relative to WTI) but delivery in a year would actually cost you about $5.10 less per barrel. That is backwardation, and it signifies a very tight spot market, where oil commands no storage premium. Unlike WTI, people want their Brent crude now and are willing to pay up.
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Source: Diapason Commodities