Oil futures: WTI prices surge 3.5%, intermonth spreads rocket

Quantum Commodity Intelligence – Crude oil futures Wednesday continued the week's renewed upwards trend as investors honed in on the looming Q4 supply/demand crunch, while a fall in US crude inventories underpinned the day's sharp gains. 

Front-month Nov23 ICE Brent futures were trading at around 2023 highs of $96.60/b (1915 GMT), compared to the day's high of $97.06 and Tuesday's settle of $93.96/b. The more-liquid Dec23 contract was trading $94.33/b.

At the same time Nov23 NYMEX WTI was trading $93.72/b, versus Tuesday's settle of $90.39/b and having posted a yearly high of $94.17/b. The Nov23/Dec23 spread rocketed to around +$2.30/b, while Dec23/Jan24 also topped $2/b. 

Last week Bloomberg reported firm WTI buying from Atlantic Trading and Marketing, the US trading arm of France's TotalEnergies, which helped boost WTI values in relation to other global crude benchmarks, including Brent and Dubai.

Latest US government data showed stocks at the Cushing storage hub drop nearly 950,000 barrels last week to under 22 million barrels, the lowest since July 2022 and close to minimum operational levels that are needed to keep volumes flowing efficiently and maintain quality. 

Focus also switched back to the widening gulf between supply and demand, which OPEC said earlier this month could balloon to over 3 million bpd in the fourth quarter.

Warren Patterson, head of ING's commodity research, expects Brent prices to break above $100/b in the near term as supply cuts by OPEC+ countries more than offset any weaker demand due to the global economy's slowdown and higher prices.

However, he doesn't see oil prices remaining above $100/b for long, noting potential weaker demand and political pressure to increase supply should help to bring oil prices back to levels back into the low $90s/b.

Inventories 

Investors shrugged off data from the American Petroleum Institute released Tuesday, which revealed a 1.6-million-barrel build in crude stocks against analysts' expectations for a draw of around 1.5 million barrels.

However, the crude build was in part offset by a small 70,000 barrel fall in gasoline, while distillate stocks dropped by around 1.7 million barrels.

Additionally, WTI spreads widened after the API reported another drop in Cushing stocks.

But prices cemented the session's gains after the latest EIA data showed US commercial crude stocks fell over by over 2 million barrels for a second week week, although gasoline and distillates were both higher. The EIA calculated Cushing crude stocks down by 950,000 barrels, also boosting WTI prices.

Prices were lower in the earlier part of the week on a combination of Europe's sluggish performance, 'higher for longer' interest rates in the US and the stronger dollar, along with ongoing concerns over China's ongoing property crisis.

As such, prices are expected to remain volatile as the struggle between oil fundamentals and wider macroeconomics plays out.