INTERNATIONAL - Oil’s 24% slump this week might be the start of a prolonged period of pain for some in the market, according to several key indicators.
As Saudi Arabia and Russia prepare to pump-at-will in a battle for market share, oil timespreads, tanker rates and other indicators are showing that an industry already struggling with weak demand is about to be drowned in supply. Here are three charts that illustrate what’s happening.
Prompt Sell-Off
The price of prompt oil relative to future deliveries is sinking as the market braces for a flood of crude from some of the biggest suppliers. While the impending deluge is bad for producers, the structure -- known as contango -- allows traders a nearly risk-free profit from storing crude in tanks or ships.
Brent’s six-month contango widened to nearly $6 a barrel on Thursday, the largest spread since 2015.
Prices Undercut
The oil spread that helps to dictate the flow of African and North Sea crude to Asia has collapsed following Saudi Arabia’s historic price cuts. The differential between Brent futures to Dubai swaps, or EFS, turned negative and slumped to the deepest discount since 2006, according to data compiled by Bloomberg.
While a pledge by the kingdom to raise output would typically be bearish for Dubai oil, the magnitude of the price adjustment means sellers looking to place sweet crude into Asia will now have to drastically discount their oil against cheaper crudes from the Middle East.
Tanker Tussle
The daily chartering cost of an oil tanker on the Middle East to China route has climbed sixfold since late last week after the collapse of the OPEC+ alliance set the scene for a boost in exports.
Saudi Arabia’s pledge to ramp up crude exports has prompted other OPEC producers such as Abu Dhabi and Iraq to follow suit. This has led to a fixing frenzy by producers, traders and refiners looking to transport crude as well as store supplies on tankers to take advantage of the widening contango.