EIA explains steep backwardation of WTI futures curve

Over the past 6 months, the front month price of West Texas Intermediate oil futures has been pushed up relative to later months, leading to a steepened backwardation of the WTI futures curve. Backwardation is the market condition where prices of contracts with later delivery dates are trading below prices for near-term contracts.

According to the US Energy Information Administration, the current steep backwardation can be attributed to several factors:

• The price of the front-month contract has been driven up by recent geopolitical events, supply disruptions, and high seasonal refinery demand.

• Market participants expect some bottlenecks of pipeline infrastructure to transport oil out of Cushing, Okla., to persist, which contributes to lower WTI futures prices and drawing from inventories that reached record highs last year.

• According to EIA’s latest Short-Term Energy Outlook, total US crude oil production will average 8.4 million b/d in 2014 compared with 6.5 million b/d in 2012. Market expectations are that US oil production will increase in future years, which contribute to downward pressure on the WTI price.

“The fact that the market is backwardated reflects the market’s anticipation that most of the recent international geopolitical factors will be temporary. The market expects the longer term fundamental production and transportation issues described above to remain, which contributes to lower WTI prices,” EIA said.

Contact Conglin Xu at conglinx@ogjonline.com.

Related Articles

IAGC appoints new president

09/19/2014 The board of the International Association of Geophysical Contractors has reported that Ken Wells has been named as the organization’s president.

MARKET WATCH: Crude oil futures down more than $1 in New York, London

09/19/2014 The New York Mercantile Exchange October crude oil contract lost $1.35 to $93.07/bbl on Sept. 18. The November contract declined $1.22 to $91.98/bbl.

ExxonMobil ‘winding down’ Arctic well, complying with US, EU sanctions on Russia

09/19/2014 ExxonMobil Corp. released a statement that the company is complying with all US sanctions on Russia after news reports that the operator had halted...

ExxonMobil, Linn to make second asset exchange this year

09/19/2014 ExxonMobil Corp. has agreed to trade interest in 500 net acres from South Belridge field near Bakersfield, Calif., to Linn Energy LLC, Houston, in ...

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected