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The
monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil rose
faster in January, advancing by $6.44 (+7.3 percent) to $94.69 per barrel. That
rise was concurrent with a slight weakening of the dollar, but occurred despite
the lagged impacts of a drop in consumption of 118,000 barrels per day (BPD) --
to 18.6 million BPD -- during November, and a uptick in already-plentiful crude
stocks.
The
price spread between Brent crude (the predominant grade used in Europe )
and WTI shrank in December (January Brent data was not yet available when this was
written), to $21.24 per barrel. Brent and WTI prices had been essentially
identical until the end of 2010.
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Many
analysts expected the above-normal crude stocks to drive near-term prices
(including those of gasoline and diesel) lower, but that has not happened.
Geopolitical tensions (e.g., the takeover of and hostage-taking at an Algerian
natural gas plant by Islamist militants, and Israeli air
strikes of military targets in Syria
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While
traders pushed futures prices modestly higher, it is apparent they think the
crude oil market is going through another transition. As a result, near-term
contracts are in “contango” (each subsequent contract is priced higher than its
predecessor) while latter contracts are in “backwardation” (each subsequent
contract is priced lower than its predecessor). Our interpretation of this
pattern is that traders anticipate tight oil markets through mid-year 2013, but
loosening supplies thereafter.
The foregoing comments represent the
general economic views and analysis of Delphi Advisors,
and are provided solely for the purpose of information, instruction and
discourse. They do not constitute a solicitation or recommendation regarding
any investment.
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