LONDON—The discount on front-month Brent crude oil futures to later contracts increased to an 11-year high on March 26, as the coronavirus pandemic continued to cause an unprecedented slump in global demand.
The spread on the May to November contracts had widened to as much as minus $10.31 per barrel at 5:04 CDT, a level not seen since January 2009.
The so-called contango market structure implies traders expect oil prices to be higher in the future, in this case when the virus pandemic has hopefully passed, leading them to store crude onshore or in some cases at sea.
The 12-month Brent contango spread was minus $12.61, a level also not seen since January 2009.
“The current storage economics against Brent structure make floating and onland storage more than feasible ... Super-contango is back,” analysts at OilX said in a note.
For U.S. West Texas Intermediate (WTI) crude, the contango between May and June prices was minus $2.96 a barrel, the largest since February 2011.
The six-month WTI contango spread from May to November was minus $8.95, the biggest since March 2015, and the 12-month contango was minus $11.02, the largest since February 2016.
From Canada and the Caribbean to the Baltic and Singapore, oil tanks are filling fast, despite a 50% to 100% jump in lease costs, as oil companies and traders scramble to park unwanted crude and refined products.
Fuel storage rates doubled this month in some onshore European and U.S. hubs as traders rushed to secure tanks in the hope of selling their products at a higher price when the coronavirus outbreak eases and demand recovers.
Stabilizing the oil markets is expected to be a challenge because demand has collapsed.
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