(John Kemp is a Reuters market analyst. The views expressed are his own)
By John Kemp
LONDON, Oct 9 (Reuters) - Timespreads for West Texas Intermediate (WTI) and Brent futures have strengthened
significantly over the last month as fears about another big build up in crude oil stocks eased.
The discount for WTI delivered in November 2015 rather than May 2016 has shrunk from $3.33 per barrel to $2.75
since Sept. 14. The discount for Brent has narrowed even more, from $4.50 to just $3.00
Between June and August, spot prices and timespreads for both major crude benchmarks tumbled as traders worried
about another big build in stockpiles after the end of the U.S. driving season.
Spot prices and timespreads have been strengthening for the two benchmarks over the last month. In each case the
spread started firming first, then the spot price followed (http://link.reuters.com/maz75w and
Sentiment in the market has become markedly less bearish over the last four weeks as the narrative has shifted from
bulging stockpiles to the strength of fuel demand and prospective declines in U.S. shale production.
Researchers at Goldman Sachs, one of the most influential banks in the oil market, have questioned whether the rise
in spot prices is justified by fundamentals.
“We do not believe that data releases over the past week suggest a change in oil fundamentals,” they wrote in a note
circulated on Thursday (“Oil rally to fade given still weak fundamentals”, Oct. 8).
The market remains oversupplied, according to Goldman, and a continued low price of $40-45 for WTI is required to
curb U.S. production in 2016 and bring supply back into line with demand.
Spot WTI prices are now more than $5 above the top of that range, which would threaten the rebalancing process, if
sustained. Goldman blames the rally on shifting positions among hedge funds and momentum traders
“We expect this rally to reverse and reiterate our forecast of lower prices for longer,” Goldman concluded.
For the moment, however, the market appears less gloomy, choosing to focus on how much rebalancing is already
under way rather than how much more is still to be done.
Senior Market Analyst