Contango at Christmas – Will the New Year Bring a Little Seasonal Cheer?

The long wind-down in timespreads at Cushing continued over the last few weeks with the January contract slipping into a shallow contango upon expiry earlier this week.

That is reflective of the change in physical storage needs in the hub, inventories there having built a solid 7 million barrels since bottoming out in early November. In the last few weeks, several factors pulled in the same direction to help replenish Cushing levels, including the ramp-up of new midstream crude infrastructure bringing in additional volumes from Canada to the US Gulf, significant SPR releases in PADD-3, somewhat weak crude runs in PADD-2 (until recently), and even rising US onshore crude production.

In terms of Cushing stocks, we have seen daily increases throughout the January front-month contract period.  Rising from 28.248 mbbl measured on Thursday 18th November to 34.630mbbl measured last Friday. 17th December.  So, stocks were up 6.382mbbl across the period and from our data, the highest resolution in the market, we saw this as steady rises of some 225kbbl per day.  The last time we saw a daily draw in stocks was back on 16th November, when stocks fell 638kbbl from the previous Friday.  Now in Christmas week, we are seeing little change to this recent pattern as the holiday season approaches.  Our TankWatch Cushing data for Tuesday, released yesterday, showed a further build from last Friday.

But what is on the horizon for Cushing as the new year rolls in? For one thing, January is typically a relatively strong month for crude throughput prior to maintenance in the spring. Not only are US road fuels stocks still well below normal, but there is healthy demand in Latin America to cater for (albeit though crude runs there are rising). What is more, while the energy crisis in Europe may not yet have caused a significant spike in oil demand for power generation, it may still result in a strong call on US refined products since European margins are currently under quite some pressure from natural gas and carbon prices.

There are also possible impacts on the crude side. PADD-3 is set to see the strongest month of net-exports of the year in December, and Europe may well have a healthy appetite for sweet US volumes to mitigate these additional refining costs. Q4 has already seen one of the highest shares of sweet crude imported into OECD Europe over the last 5 years and this trend may well continue. Add to that an apparent renewed interest in Atlantic basin barrels from Asia (given the healthy recent pace of West African trading and recently strong imports of US crude from the likes of South Korea) and it looks as though overall demand for total US oil could be healthy for the weeks to come. And for now at least, the White House appears to have ruled out any extraordinary action to cool domestic prices such as crude export bans.  

As all these factors play-out next month, now might be just the right time for that early Christmas present.  A complimentary one-month trial of TankWatch data providing daily Cushing stocks over the January period whilst the new Front-month contract plays out.

By Neil Crosby, OilX and Dan Schnurr, GSI


Neil Crosby has a decade of experience in oil and gas consulting and currently works a senior analyst at OilX. His work has focussed heavily on market analysis and price forecasting, in particularly on the downstream oil sector.

Dan Schnurr studied at Bloxham before attending the Universities of Bristol and Nottingham. After first working with Aramco in the middle east, he has spent over 30years measuring, analysing and writing on oil storage.