West Texas Intermediate fell 1.5%, with futures consolidating after a run that’s seen them rise about 30% so far this year. On Monday, WTI’s nearest timespread slipped into a bearish contango structure, signaling short-term oversupply, however the rest of the curve remains in a bullish backwardation.
Though there are signs of recovering demand in some parts of the world, other regions — notably Europe — are lagging. Road-fuel consumption is growing in India and the U.S., while Italy has headed back into lockdown.
Oil’s been on a strong run as supply cuts from OPEC and its allies tighten the market and expectations grow for a rebound in travel over the northern hemisphere’s summer. But there are mixed signs emerging as Iranian oil flows heavily to China and the pace of coronavirus vaccination rollouts remain uneven across the globe.
“The market is now immediately looking for physical clues as an explanation to this front-end weakness,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “In the background though, Covid-19 vaccines keep being rolled out and global oil demand in general and the U.S. specifically keeps rebounding.”
In the U.S., coronavirus cases rose last week at the slowest pace since the pandemic began. At the same time, retail gasoline sales increased to just 1% below year-ago levels, according to GasBuddy. That’s good news for an industry that relies on the busy summer driving season to buoy profits.
In a contango structure, near-term prices trade below those further out, a bearish pattern that suggests oversupply. In the U.S., drillers are pumping again following last month’s freeze, and nationwide stockpiles of crude have been expanding. In contrast to WTI, Brent’s prompt timespread is 54 cents a barrel in backwardation, a bullish pattern that points to near-term tightness.