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The
monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil nudged
higher in February, advancing by $0.63 (0.7 percent) to $95.32 per barrel. That
rise occurred despite a slight strengthening of the dollar, the lagged impacts
of a drop in consumption of 474,000 barrels per day (BPD) -- to 18.1 million
BPD -- during December, and a continued increase in already-plentiful crude
stocks.
The
price spread between Brent crude (the predominant grade used in Europe )
and WTI shrank in January (February Brent data was not yet available when this was
written), to $18.27 per barrel. Brent and WTI prices had been essentially
identical until the end of 2010.
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While
traders pushed futures prices noticeably lower in recent days, 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.
Although
oil futures prices are retreating, gasoline prices have been buoyed by a “perfect
storm” of factors including: refineries switching to summer blends, reduced
capacity from maintenance and unexpected shutdowns/closures, continued strife
in countries that produce significant amounts of oil, and expectations of
improvement in the global economy.
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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