Why crude is going up

Because of the upward price pressure on the near-term contracts, near-dated contracts have higher prices than longer-dated contracts, a situation referred to as backwardation Figure 2. When near dated contracts have lower prices than longer-dated contracts, it is known as contango.

The Brent 1—13 spread on November 2 was the highest spread since September 13, On November 5, U. Crude oil inventories in Cushing, however, were Backwardation over the short term first- and second-month contracts reflects the low inventory levels Figure 3. A shift in crude oil flows away from Cushing while the Capline pipeline is being filled is likely contributing to low crude oil inventories in Cushing. The Capline pipeline is expected to reverse the flow direction to move crude oil to the U.

Gulf Coast in early During the past decade, similarly high levels of backwardation in Brent and WTI crude oil have typically occurred only during periods of large, unplanned supply disruptions. In this regard, the empirical study by Cashin et al. Finally, in addition to the mitigating effect of demand, there have been other changes in the traditional transmission mechanisms.

Firstly, oil has become less important in the global supply chain, both due to GDP being less energy-intensive and due to oil accounting for a smaller portion of the total energy consumed. Secondly, the oil-exporting economies currently have smaller fiscal buffers, meaning that their propensity to spend the additional revenues generated from oil may be greater.

Finally, the irruption of the shale sector in the US has resulted in much of the US economy now benefiting from higher oil prices. On the whole, all these elements suggest that the impact of rising oil prices on the global economy could be less significant than traditionally expected, and they also help to explain why global GDP has remained strong in recent quarters.

Part of the reason for the agreed production cuts being exceeded is the major economic crisis which Venezuela has been suffering from and the collapse of its oil production: in May , the country supplied , barrels per day less than in May See R.

Kaplan «A Perspective on Oil», speech of 19 June. See I. Alonso and F. Skudelny , «Are the recent oil price increases set to last? Cashin et al. Sign up. About CaixaBank Research. The U. N said in its closely followed report on Friday. The International Energy Agency on Thursday said the energy crunch is expected to boost oil demand by , barrels per day bpd. Subscribe for our daily curated newsletter to receive the latest exclusive Reuters coverage delivered to your inbox.