Without considering an expectation of OPEC-led cuts, Brent and WTI prices have slumped by 28 and 30 percent singly since early October, and the entire structure of the forward price curve has converted.
The Brent forward curve was in steep backwardation in October, implying a rigorous market with prices for spot delivery higher than those for later convey. This makes it unattractive to store oil.
Since then, however, the curve has moved into contango for most of 2019, signaling oversupply as higher prices further out make it attractive to store oil for later on sale.
“Investors are becoming increasingly concerned that any potential production arranges by OPEC will be insufficient to cover the surplus in the market,” ANZ bank said on Wednesday.
“The rota of reasons for the decline are pretty specific … too much supply and a jeopardize of slowing demand growth,” said James Mick, Energy Portfolio Supervisor with U.S. investment firm Tortoise.
“Part of the supply issue has been surging U.S. product,” he added.
U.S. crude oil production has jumped by almost a quarter this year, to a record 11.7 million bpd large because of a surge in shale output.