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NYMEX crude April/May spread nears contango as oil weakens

  • Source: platts
  • Mar.13,2018

The April/May spread for NYMEX crude narrowed 9 cents Monday to a backwardation of 3 cents/b, as the M1/M2 spread continues to weaken, sitting on the precipice of contango for the first time since January.

The same spread for ICE Brent also softened Monday, but remains on more solid footing. The M1/M2 spread narrowed 6 cents to 16 cents/b.

"One driver behind this relative weakness in the nearby energy contracts has been some long liquidation following recent establishment of record speculative crude length by a wide margin," oil consultant Jim Ritterbusch said Monday in a note.

The flattening of curves was conveying "bearish overtures" that could discourage length from reentering the market, he said.

Money managers' net length in NYMEX crude futures peaked at an all-time high of 483,829 contracts the week that ended January 16, according to US Commodity Futures Trading Commission data.

The latest CFTC data showed net length at 441,124 contracts the week that ended March 6, down 19,213 contracts week on week.

The change reflected money managers boosting bearish bets for the first time in five weeks, in addition to traders liquidating length.

NYMEX crude's nearby spread flipped into backwardation in January for the first time since late 2014.

Steady draws in stocks at Cushing, Oklahoma -- the delivery point for the NYMEX crude contract -- were cited as one catalyst behind the shift from contango to backwardation.

But with the pace of withdrawals slowing, and analysts saying builds could materialize soon, the impact of Cushing storage on NYMEX crude's term structure seems to be fading.

If Cushing starts to see builds soon, NYMEX crude's structure could return to contango, a note from JP Morgan said last week.

The oil complex began the week lower, paring some of the increases from Friday, when a broad rally lifted equities and commodities.

NYMEX April crude settled 68 cents lower Monday at $61.36/b. ICE May Brent settled at $64.95/b, down 54 cents.

NYMEX April ULSD fell 2.19 cents to $1.8647/gal. NYMEX April RBOB settled down 1.03 cents at $1.8940/gal.

US equity indexes were lower for most of Monday's session. In the afternoon, the Dow Jones Industrial Average was down 164 points at 25,171, while the S&P 500 Index was 5 points lower at 2,781.