Oil Tops $130 a Barrel as Russian Attacks Escalate
Oil buyers racing to replace Russia’ taboo crude are paying record premiums for barrels that can be delivered now rather than later, reflecting worries about adequate near-term fuel supplies and expectations that high prices will reduce consumption and encourage drilling.
Futures contracts for delivery in subsequent months have risen as well, but not by nearly as much. When U.S. futures for delivery next month ended Wednesday at $110.60 a barrel, contracts for next March settled at $84.53. The $26.07 difference has never been greater in favor of the front month. Prices ended the week a little closer together, yet the sharp rise Sunday night in near-term futures suggests a widening gap in the week ahead.
The pattern is mirrored in international markets, where the 12-month price spread on benchmark Brent crude futures also surpassed $20 a barrel last week for the first time on record and blew out even wider Sunday night when front-month futures also rose above $130.
“It’s hoarding,” said RBC Capital Markets analyst
Michael Tran.
He points to an 83% week-over-week jump in lease rates for very large crude carriers on the Persian Gulf to Asia route as further evidence that buyers are paying whatever they must to stock up in case Russian exports dry up. “People are saying, ‘Give me as much as you’ve got, I’ll buy as much as I can,’” he said.
Over nearly four decades of trading in West Texas Intermediate futures, a barrel on average has cost 40 cents more than one delivered a year later. The difference rarely exceeds $10 in either direction, and when it does, the blowout is usually related to a war, hurricane, market crash or pandemic.
The widest spread on record came in April 2020, when the global economy was locking down to slow the spread of Covid-19 and front-month U.S. oil-futures prices plunged into negative territory. The worry was that fuel consumption was falling faster than oil producers could shut off the spigots, leading to trades in which sellers effectively paid buyers to take oil off their hands. Prompt-month futures settled at negative $37.63 after one historic trading session, while contracts for barrels one year out stayed above water at $34.35, for a spread of negative $71.98.
Producers eventually choked back before the world’s oil-storage facilities overflowed. Now as economies reopen, producers—from the Organization of the Petroleum Exporting Countries to Texas frackers—have been slow to meet rising demand. The imbalance has drained fuel stockpiles around the world and sparked forecasts on Wall Street for $100 oil this summer, during peak driving season.
Triple-digit oil prices arrived sooner than expected when Russian tanks rolled into Ukraine. Analysts and Wall Street strategists are upping their price forecasts even higher now that Russia’s oil exports are being treated as off-limits by many buyers.
OPEC and its market allies, including Russia, have chosen to maintain the cartel’s production quotas despite surging…
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