The front end of the WTI forward curve is in a correspondingly marked state of contango. The December contract for US light oil is trading around 90 US cents lower than the January contract. The only thing that is preventing prices from sliding even further despite the oversupply is the longer-term outlook.
Fatih Birol, the new director of the International Energy Agency, has warned for example that there is a risk of tighter times again following the period of oversupply on the oil market, which looks set to continue until mid-next year. This is because investments in the oil industry are being significantly cut. There is a danger that investment will be reduced for two consecutive years from 2016 for the first time in twenty years, states Commerzbank.
Oil producers in the US are in any case exercising caution: although the US oil rig count declined by only 1 week-on-week, it nonetheless hit a new low of 594 - its lowest level in a good five years. The prospect of declining US supply in the medium term is doubtless the main reason why speculative net long positions in WTI are holding their own at the comparatively high level of nearly 160,000 contracts, despite a slight reduction last week. But there is further potential for correction here, says Commerzbank.
