An Overview of the Crude Oil Market in 2019

In the second half of 2018, the oil market exhibited high volatility not only in terms of price levels but also time spreads and quality spreads. After reaching highs of $81/b and $71/b in October, monthly Brent and WTI prices ended the year in December at $57/b and $49/b respectively. At the same time, time spreads switched from backwardation to contango, as inventories rose above their 5-year average and the prospects for global demand worsened amid supplies increasing. The spreads between light sweet-medium sour crude also exhibited wide volatility, with the Brent-Dubai and WTI-Dubai spreads collapsing signalling a shortage of heavier sour crude globally.

Brent and WTI prices have gained significantly since December 2018, ending-March 2019 near $67/b and $60/b respectively (about $10/b higher), and time spreads are once again in backwardation. That said, while the Brent price in the front of the curve has increased sharply since the last quarter, the back end of the forward curve remains relatively sticky at around $60/b, suggestive of the fact that the dominant narrative remains relatively bearish. This presentation provides an overview of the oil market and price dynamics in early 2019, discussing the key challenges in the year ahead and examining possible outcomes.

Executive Summary

By: Bassam Fattouh , Andreas Economou

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