Analysis: WTI Flips to Contango 6Mo Out as Oil Glut Looms


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- The softening backwardation in West Texas Intermediate 
futures calendar spreads on NYMEX reflects easing near-term inventory tightness 
in U.S. crude oil  and future expectations on its oversupply.

   The once steep backwardation in the time structure of WTI contracts has been 
easing since mid-June, with calendar spreads retreating to five-month lows.

   On Friday (10/17), the prompt-month contract flipped to a discount to oil 
for delivery seven months out for the first time since January 2024. The 
twelve-month spread has similarly fallen into negative territory this week for 
the first time since May.

   WTI's backwardation has not only been flattening at the front end, but just 
this week saw a rapid shift into contango much sooner than previous. WTI for 
May delivery and beyond are now trading at a premium to the prompt month 
contract. Just last week, the flip into contango was for March 2027 delivery 
and beyond.

   This rapid shift came as the International Energy Agency on Tuesday (10/14) 
sharply revised higher its oversupply estimates for 2026, now just shy of 4 
million bpd.

   The revision was based on the pace of recent OPEC production hikes, which 
the Paris-based energy watchdog is expecting to continue well into 2026, as 
well as on stronger-than-expected non-OPEC output growth and sluggish demand.

   In its latest monthly oil market report, the IEA also highlighted rapidly 
swelling inventories last month and a surge in volumes of oil on water.

   U.S. crude oil production has continued to surprise to the upside despite 
sliding prices.

   In its latest short-term energy outlook, the Energy Information 
Administration raised its U.S. crude oil production forecast for both 2025 and 
2026 to 13.5 million bpd, noting that production reached a record high 13.6 
million bpd in July, beating the agency's previous estimates.




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