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(Bloomberg) — A corner of the US crude market closely watched by physical traders is signaling oversupply in the latest indication that a global glut has reached domestic shores.
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Light, sweet West Texas Intermediate at the Magellan East Houston terminal is trading 12 cents a barrel cheaper than later-dated oil in a bearish structure known as contango. What’s more, the Gulf Coast barrels have been in contango almost every day since October and show no signs of flipping even as suppliers try to drain inventories to avoid year-end taxes.
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Oil traders see the Gulf Coast price structure as the new canary in the coal mine for the oil market, as the region houses the nation’s largest tank farm, refining hub and crude-exporting area. The signal of oversupply is particularly important for traders as WTI and Brent oil future prices remain in a stubbornly bullish, backwardated structure indicating market tightness. In the US, that’s in part because inventories that used to be held at Cushing — the delivery point for WTI futures — have shifted to the Gulf Coast.
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“Cushing is less strategically important than it used to be,” said Robert Auers, an analyst with energy consultant RBN Energy LLC.
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The regional glut is also showing up in floating storage: Oil loaded onto ships that haven’t moved in at least seven days is near the highest since the throes of the pandemic, according to Vortexa Ltd. The International Energy Agency is now forecasting of a record overhang of 3.8 million barrels a day next year.
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While year-end tax rules are encouraging Texas oil holders to keep inventories as low as possible, tank farms will probably begin filling up again from January, according to traders.
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