By Grant Smith and Elizabeth Low
As the alliance dithers, conditions in global crude markets are deteriorating.
A discount on prompt crude, which appeared in Brent front-month contracts last week for the first time in a year, is taking hold in the futures market. The pattern, which is known as contango and usually indicates oversupply, now extends all the way through to September contracts.
Oil short-selling has more than doubled in just two weeks. Hedge funds boosted bearish wagers against WTI crude by 41% in the week ended Feb. 4, following a 52% surge a week earlier.
Another indicator closely watched by traders — the so-called “red spread” between December contracts in consecutive years — is also shifting towards contango after collapsing from $1.31 a barrel in late January to just 4 cents on Monday.
The Organization of Petroleum Exporting Countries and its allies have shown some readiness to intervene, with a committee of technical experts counseling last week that the coalition — which pumps about half the world’s oil — should deepen existing production curbs by an additional 600,000 barrels a day during the second quarter.
Yet Russia, the biggest crude producer within the group, hasn’t yet announced whether it will back the policy, or a meeting before the group’s scheduled early March gathering to make it happen.
“The oil price will have to do the job of balancing the market because OPEC+ will not step in and counter the current demand shock from China,” said Bjarne Schieldrop, Oslo-based chief commodities analyst at SEB AB.
West Texas Intermediate crude for March declined 0.5% to $50.09 a barrel on the New York Mercantile Exchange as of 11:22 a.m. in London. It closed 1.2% lower on Friday.
Brent for April delivery fell 0.4% to $54.25 a barrel on the London-based ICE Futures Europe exchange after losing 0.8% Friday. The global crude benchmark traded at a $3.91 premium to WTI for the same month.
Prices could come under further pressure if talks aimed at ending the conflict in Libya, where a blockade of ports has pushed production to the lowest level since 2011, lead to a restoration of output. A two-day meeting that started Sunday is being closely watched for any sign of a deal that could restore over 1 million barrels a day of output to global markets.
|Other oil-market news|