Brent crude oil was trading at $70.02 on Monday morning; Nymex WTI crude, meanwhile, was trading at $66.08.
That is almost a $4 per barrel spread between the two contracts — its widest since mid-February when storage at Cushing, Oklahoma, the physical delivery point for Nymex traded WTI crude, peaked and caused numerous analysts to question the viability of the Nymex contract.
The downward correction in WTI to $66 per barrel from over $70 per barrel levels this month, meanwhile, came just as macroeconomic news was actually looking a bit more bullish.
As JBC Energy notes on Monday (our emphasis):
Last week was dominated by positive news by the Fed and Eurostat: US industry production grew for the first time in nine months and the two largest economies in Europe, Germany and France, left the recession behind in Q2 growing by 0.3% . Japan also joined the countries coming out of the recession. On the back of a strong rebound in exports (+6.3%), the country’s GDP grew in Q2 for the first time since Q1 08 by 0.9% on a quarterly basis. While global GDP figures and other indicators suggest that we are somewhere between the bottoming out and recovery phases, the sentiment in the market still appears to be souring. On the one hand, the perception is widely shared that it will be a long and stony path filled with potential pitfalls before the economy returns to full growth. On the other, consumers will now increasingly feel the repercussions of the recession and the cost of dedicated stimulus programs, with unemployment soaring and tax increases looming. Accordingly, the US consumer sentiment index fell in August to its lowest level since March.
The above-mentioned perception changes were also seen in the reading of fresh fundamental data. The focus appeared to have been on weak EIA data (which has been regularly ignored in recent months), while skyrocketing Chinese crude requirements were basically overlooked. US crude oil stocks rose by 2.5 million barrels, the third consecutive weekly rise, while refinery utilisation is now 9% below the 5-year average. Crude oil demand in Europe is set to remain low as well.
Adding further downside pressure on Monday will also be the expiry of September WTI options — some 17,00o put contracts come into the money at $65 per barrel.