Crude recovery watch: Mixed picture in inventories
Tuesday's trading was a prime example of the strong upside sentiment permeating in the crude oil complex. Genscape reported a huge build in Cushing, Okla., crude oil inventories and after a short lived round of selling the market recovered all its intraday losses and closed higher on the day. The market remains in a mode of discounting any bearish news and embracing anything bullish. The Genscape report continued to support the view that the current fundamentals are oversupplied and simply bearish.
So far, in early morning trading the market is giving back yesterday’s gains as we go through another light round of profit taking selling. These bouts of profit taking selling have been short-lived since the recovery rally began on Jan. 30. As shown on the Recovery Watch Table (second table below) the flat price of Brent and WTI remains well above where it was trading at when the current rally began. Brent is still higher by over 25% while WTI has gained close to 19% over the same timeframe. This is the 13th trading day of the recovery rally.
The Brent/WTI spread has also widened during the rally as the surplus of crude oil is showing up more visibly in the United States. This is evidenced by the more than doubling of Cushing crude oil inventories since the rig count peaked during the week of Oct.10, 2014.
Of interest shown in the Recovery Watch table is the ongoing narrowing of both the Brent and WTI 12 month forward curve contango since the rally started. The most pronounced change has been the 36 percent narrowing of the Brent contango to $6.44/bbl based on yesterday’s settlement. At this level storing Brent benchmarked international crude in floating storage for a 12 month period is not very interesting to the trading community. On the WTI front the contango has also narrowed but not to the extent of the Brent curve. It still makes economic sense to store WTI benchmarked crudes but the economics are not as interesting as they were just a week or two ago.