The US oil benchmark briefly surged to $95 per barrel due to concerns over decreasing stockpiles at a crucial storage hub, which raised worries about a global drop in crude oil supplies.
West Texas Intermediate (WTI) reached its highest level since August of the previous year before stabilizing. This increase in oil prices was primarily driven by a reduction in inventories at Cushing, Oklahoma, which serves as the delivery point for US futures.
As supplies at Cushing approach minimum operational levels, significant price indicators are experiencing sharp increases, driven by concerns of scarcity. This trend is having a ripple effect worldwide, with WTI and the global benchmark Brent displaying extremely bullish pricing structures. Traders are willing to pay substantial premiums to secure local crude oil supplies.
“It really all boils down to concerns over supply tightness continuing and even exacerbating going into the northern hemisphere winter months,” Vandana Hari, founder of consultancy Vanda Insights, said on Bloomberg TV. “You have a market which is very tightly strung right now, almost on the verge of panic.”
Official data released on Wednesday revealed that overall US crude stockpiles experienced a more significant decline than anticipated. This underscores the rapid tightening of the market due to supply reductions from major oil producers such as Saudi Arabia and Russia.
WTI crude oil prices have surged by approximately one-third since the end of June and are poised to record the most substantial quarterly gain since June 2020, a period marked by price fluctuations in the early stages of the pandemic. Brent crude has also exceeded $97 in intraday trading this week.
Earlier this month, OPEC predicted a potential deficit of up to 3 million barrels per day in crude oil supply during the fourth quarter. With robust demand persisting in the US and China, many market observers now view the possibility of oil prices reaching $100 as inevitable, even in the face of a strengthening US dollar and concerns about elevated global interest rates.
The tightening of physical oil markets is evident in the futures curve. The prompt spread for WTI, which represents the price difference between the nearest futures contract, has surged to as much as $2.60 per barrel within the bullish backwardation structure.
This is a significant increase from just 61 cents observed in the middle of the previous week. Additionally, options trading is reflecting concerns about larger price fluctuations.