The long wind-down in timespreads at Cushing continued over the last few weeks with the January contract slipping into a shallow contango upon expiry earlier this week. That is reflective of the change in physical storage needs in the hub, inventories there having built a solid 7 million barrels since bottoming out in early November. In the last few weeks, several factors pulled in the same direction to help replenish Cushing levels, including the ramp-up of new midstream crude infrastructure bringing in additional volumes from Canada to the US Gulf, significant SPR releases in PADD-3, somewhat weak crude runs in PADD-2 (until recently), and even rising US onshore crude production.

Prompt WTI timespreads, as in every corner of the market, took a pummelling late last week amid the huge sell-off in crude brought on by the emergence of the new coronavirus variant. While the plummet in flat price and structure was triggered by fears that the Omicron variant would drag on global oil demand, the move was exacerbated by low liquidity on the long weekend, selling pressures from hedging activity and the triggering of sell signals, and initially high speculative net length.

Prompt WTI timespreads went on another rollercoaster ride in the run up to the latest weekly EIA release, with initial bullish input coming from API data that showed another draw on total US crude inventories. Dec/Jan ultimately pulled back from price levels approaching an exceptionally high $1.70/bbl as the market closed on Tuesday 9th, after the API release.

There was something of a hiatus in the relentless run-up in crude futures on both sides of the Atlantic in early trading ahead of November contract expiry on Wednesday 20th, but prompt WTI timespreads (Dec/Jan) remain well-supported. With speculation high regarding energy shortages going into winter, the market has been trying to reconcile the likely path for crude balances in the weeks ahead with the current state of the physical market and its relevant indicators.

WTI timespreads were propelled higher in the last few hours of trading on Friday amid speculation of tightening crude availability both in the US and globally in the coming weeks. US refiners are now contemplating a bullish oil demand forecast this winter which could add impetus to runs in the face of already low road fuel stocks and strong margins. That could contribute to a few more weeks of draws in crude inventory at Cushing and nationwide, albeit not at the pace that prevailed over the summer.