The past month has seen weak near-term fundamentals reassert themselves over bullish sentiment about the medium-term outlook in oil markets.
Crude prices have pulled back to a more realistic level, towards the middle of OPEC’s informal $70-$80 target range, as growing evidence of ample supplies and swelling inventories overwhelms the previous uptrend.
Much of the price movement has reflected changes in the shape of the forward curve rather than flat prices, and been concentrated in the NYMEX light sweet crude contract, rather than ICE Brent futures.
Front-month NYMEX futures have fallen $9.50 (11 percent) since the end of April, erasing this year’s prior gains. Losses on the December contract have been smaller, down just under $7.00 (8 percent). As a result, the Jun-Dec contango, already wide at $5.50 at the start of the month, has almost doubled to $9.25.
The steepening of the contango seems to have been triggered by consecutive weekly builds in reported oil stocks held around the NYMEX delivery point at Cushing, Oklahoma.