FxWirePro: Demand/supply equation coupled by US trade clashes engulf crude futures – Uphold time spreads

Crude prices today seems to be edgy on demand/supply equation. WTI CFDs are trading between the tight range of $62.26 and $61.97 levels as lingering concerns over output and eclipsed demand projections coupled with other concerning factors as stated below.

President Trump signed the proclamation on adjusting import tariffs by 25% on steel imports and 10% tariffs on aluminum imports on Thursday 8 March. Mexico and Canada have been exempted indefinitely for now, but conditional on a new NAFTA agreement. The proclamation also includes a potential for US entities to apply for an exemption. We think this could include the US oil and gas industry.

Trade-weighted dollar Index has gone up by 0.2% and is up 1.7% since mid-Feb and any continued strength in the dollar will be a key downside risk to commodities in general, but oil in particular.

The weekly EIA data released on Wednesday pointed to further crude draws in Cushing, OK, and in contrast continued to show builds on the US Gulf Coast. Cushing stocks now stand at just shy of 28.2mb, a level last seen in Dec’14, when overall tankage space was considerably smaller than current capacity.

WTI contracts for April delivery was down about 20-26 cents or about 0.40% at $62.09 a barrel by 11:27 GMT, the two-week highs of $62.54 on last Friday was unable to sustain owing to the struggle for the buying momentum.

Elsewhere, Brent futures for May delivery on the ICE Futures Exchange in London also slid 30 cents or about 0.50%, off Friday's two-week highs of $66.42.

Brent WTI arbs would swing on the back of rising the US crude exports versus domestic crude production and demand; however, the focus in 2018 will likely move more to the basis risks, as recent widening of the discount for Midland barrels relative to Cushing points to the emergence of mid-stream capacity constraints for the burgeoning Permian supply.

Front-month WTI time spreads increased by $0.07/bbl on Friday after reaching their lowest since Dec’17 on Thursday 08 March.  Markets are starting to focus beyond the Cushing stock withdrawals, as PADD3 stock builds made up for most of the recent total builds due to the closure of arbs. If crude starts getting backed up at Cushing due to closed arbs, we could see a brief period of front-month contango in WTI, but itis unlikely to last long, in our view.

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