Oil Rebounds, Yet Contango Warns of Glut as Virus Hits Demand - Bloomberg:
Oil recovered from a one-year low as equity markets climbed, yet widespread discounts on prompt crude supplies signaled that Asia’s coronavirus is sharply eroding demand.
Brent crude added 2.1% to trade above $54 a barrel in London. But the futures curve briefly entered a full “contango” structure, in which each monthly contract is cheaper than the next, suggesting a glut in supply. Global demand estimates are being cut as the outbreak causes severe economic disruption in China, while OPEC is hesitating over steps to support prices.
As the overhang begins to accumulate, top oil traders such as Vitol SA, Royal Dutch Shell Plc and Litasco SA are seeking to hoard crude on vessels at sea. One Chinese energy company has invoked a legal clause to avoid taking delivery of liquefied natural gas.
“When the oil market is in surplus -- as it is now -- the forward curve needs to be in contango in order to pay for the storage of the building surplus,” said Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB AB. It’s the first time a full contango has taken hold in a year, he said.
Oil recovered from a one-year low as equity markets climbed, yet widespread discounts on prompt crude supplies signaled that Asia’s coronavirus is sharply eroding demand.
Brent crude added 2.1% to trade above $54 a barrel in London. But the futures curve briefly entered a full “contango” structure, in which each monthly contract is cheaper than the next, suggesting a glut in supply. Global demand estimates are being cut as the outbreak causes severe economic disruption in China, while OPEC is hesitating over steps to support prices.
As the overhang begins to accumulate, top oil traders such as Vitol SA, Royal Dutch Shell Plc and Litasco SA are seeking to hoard crude on vessels at sea. One Chinese energy company has invoked a legal clause to avoid taking delivery of liquefied natural gas.
“When the oil market is in surplus -- as it is now -- the forward curve needs to be in contango in order to pay for the storage of the building surplus,” said Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB AB. It’s the first time a full contango has taken hold in a year, he said.
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