Key WTI spread signals squeeze heading into summer

A key price differential in the West Texas Intermediate crude market indicates that oil traders are bracing for a potential supply crunch just ahead of the busy summer driving season that triggers increased demand.

The June-July WTI time gap, also known as the “ prompt cash roll, ” traded at 20 cents a barrel last week, the highest level since May 2020, according to the Bloomberg data. The spread serves as an indicator of the supply and demand balances at the main US crude storage facility in Cushing, Okla. Its recent strength shows stocks are tight as oil refiners ramp up production.

This is just the latest indicator of the extreme tension in crude supplies in the United States, with shale producers remaining cautious about production after last year’s oil crash. Meanwhile, demand for raw materials is increasing across the board against a backdrop of rebounding for the world’s largest economies. This stokes inflation concerns and highlights why some traders are betting on the sustainability of this year’s supercharged rally for energy, metals and agriculture.

U.S. oil production hovers at 2 million barrels per day, below last year’s peak, even as benchmark WTI oil futures have jumped more than 35% this year and are trading at lows. prepandemic levels. The drillers are keeping their promises of austerity to investors. In fact, explorers are adding just enough rigs to compensate for natural declines in wells already in production.

Meanwhile, at the Cushing center, stocks are below the five-year average. At the same time, US refiners are gearing up to respond to an expected boom in summer demand after the country’s vaccination campaign caused states to reopen regularly.

The WTI time gap from June to July jumped 67% in two days. The spread trades within three days of the expiration of the first month’s futures contract. It also allows market participants to roll long positions in the following month.

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