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The Futures Market Structure - December 2016

Source: OPEC 1/11/2017, Location: Europe

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Amid increasing oversupply, the market structure of Dubai flipped back to contango, while the contango in both Brent and WTI steepened. The light backwardation seen in the Dubai market structure in October flipped back into a deep contango on an average monthly basis, amid plentiful Mideast Gulf crude supplies and a lack of buying interest. The Dubai M1/M3 premium of 2cent/b flipped into a discount of 94cent/b.

North Sea Brent came under pressure again as the amount of North Sea crude in floating storage rose further. Rising supply of Brent, Forties, Oseberg and Ekofisk also pressured North Sea crudes. This resulted in a further widening of the Brent contango where the M1/M3 discount moved out to almost $2.05/b on average in November from $1.50/b in October.

In the US, the WTI contango worsened over the month amid a significant surprise build in US stocks as well as lower refinery crude intake. The WTI contango (M1/M3) widened 54cent to $1.58/b.

The ICE Brent/NYMEX WTI (or transatlantic) spread narrowed once more in November. This continued to encourage crude imports of West African (WAF) crudes and other Brent-related grades to the US. Pressure on Brent relative to WTI has come from increasing production and exports of rival grades. The amount of unsold North Sea crude in floating storage also rose further. This narrow spread boosted US demand for WAF crudes. US imports of Angolan and Nigerian crude increased to 307,000 b/d and 303,000 b/d, respectively, by mid-November. The first-month ICE Brent/NYMEX WTI spread narrowed to $1.31/b in November from $1.45/b the month before.

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