TechnoMeter

In a world where crypto currency momentum seems to defy physics, Crude Oil’s bid does not appear to be purely speculative fervor. Instead, there has been a steady drop in U.S. crude stockpiles backed by refiner demand. The drop in stockpiles has lead to backwardation where front month futures contracts are receiving a premium over later dated future contracts. In a commodity market, backwardation is a way of using the financial market’s collective intelligence to signal market tightening, which is backed by OPEC’s production cuts and steady global demand.



The December 2018 Brent Crude Oil futures contract is currently at a $3.63/bbl premium to the December 2019 contact. The demand is aligning with price support. The irony of the current state of the Oil market is that things are looking too good to some. Iran's Oil Minister, Bijan Namda Zanganeh recently said, "Members of [OPEC] are not keen on increased Brent crude prices above $60/bbl because of shale oil." Prices of Brent Oil's front month contract reached an intraday high of $69.37 on Wednesday.

The message behind the weekly inventory report out of the United States was that the overall petrol glut is continuing to shrink, and has done so for the eighth straight week. The US Crude Inventory drop registered at 4.95m barrels per the EIA. Of course, traders are often looking for the next item to round the corner, and that is looking to individual crude products that refiners have been so aggressively turning into usable products, which are not being sold downstream as fast as an oil bull would hope.

Either way, trader should think twice or more about fighting the strength seen in Crude Oil. Wednesday saw Crude trade above $64 with Brent within an whisper of $70 and backwardation explained above continues to support the backdrop.

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