International crude oil futures prices increased slightly over the previous month but remained rangebound. The North Sea Brent front month futures price settled at $108.79 per barrel (bbl) on June 5, an increase of $1.03/bbl from May 1 (Figure 1). The front month West Texas Intermediate (WTI) contract also rose , settling at $102.48/bbl on June 5, $3.06/bbl higher than on May 1.
Lower-than-previously expected non-OPEC production growth going into the seasonal summer tightening of crude oil markets and generally positive economic data combined to push oil prices near the top of their recent trading range. The June forecast for 2014 non-OPEC liquid production is about 500,000 bbl/d lower compared to expectations at the start of the year, potentially leading to reduced spare production capacity in the summer months. Additionally, U.S. durable goods orders and consumer sentiment exceeded expectations, while monetary easing by the European Central Bank combined to increase expectations for future economic growth.
The Brent-WTI spread decreased over the previous month to settle at $6.31/bbl on June 5 (Figure 2). The decline was largely due to U.S. Gulf Coast (PADD 3) crude oil prices strengthening against international benchmarks. The Brent-Light Louisiana Sweet (LLS) price spread settled at $3.51/bbl on June 5, narrowing by $2.68/bbl since May 1. The higher spread at the beginning of May led to a drop in PADD 3 imports. The four-week average of commercial crude oil imports for PADD 3 dropped to 3.18 MMbbl/d for the week ending May 16, its lowest level since 1992. With the recent narrowing of the Brent-LLS differential, PADD 3 imports could increase in the coming weeks as the Gulf Coast crude oil market prepares for the seasonal summer peak in refinery runs.
The LLS-WTI spread moved higher in May but still remains below the cost to move crude oil from Cushing, Oklahoma, to St. James, Louisiana. The spread settled at $3.20/bbl on June 5.
Backwardation (when near-term prices are greater than longer-term ones) in the Brent futures curve was relatively unchanged since May 1, close to its elevated levels after the May contract expired. The Brent 1st-13th month spread settled at $5.10/bbl on June 5, a slight decline of $0.62/bbl since May 1 (Figure 3). Expectations that OPEC spare production capacity will decline during the summer months are likely contributing to the relative strength in the near-term contracts.
With inventory withdrawals at Cushing, Oklahoma, picking up toward the end of May, backwardation in the WTI futures curve increased. The 1st-13th month contract spread settled at $9.39/bbl on June 5, $0.69/bbl higher compared to May 1. Commercial crude oil inventories at the WTI futures contract delivery point fell to 21.3 million barrels for the week ending May 30, their lowest point since November 2008.
Source: EIA