Oil prices hit 5-month low: Here we decode why
What's the story
Oil prices have hit their lowest level since early May, with Brent crude futures settling down by $0.28 at $61.01 per barrel. The decline is largely due to fears of a potential global oversupply and US-China trade tensions impacting demand. The futures contract structure of the global benchmark Brent indicates a shift in oil traders' concerns from under-supply to over-supply.
Market dynamics
Shift in oil traders' concerns
The six-month spreads for Brent and US crude futures show contracts for earlier loading are trading below those for later loading, a structure called contango. This encourages the traders to pay for storing oil to sell it at higher prices, when the supplies are expected to have shrunk in the future.
Future projections
'Real bearish narrative'
John Kilduff, a partner with Again Capital, said these fears of a supply glut are now hitting the market, especially looking ahead to 2026. He predicted that floating storage would increase and inland tanks would fill up. Kilduff also noted this is a "real bearish narrative" not seen in some time. Both benchmarks dropped over 2% last week, their third consecutive weekly decline, partly due to the International Energy Agency's forecast for an increasing supply glut next year.
Supply update
US energy firms added rigs last week
On the supply side, US energy firms added rigs last week for the first time in three weeks, according to energy services firm Baker Hughes. Analysts at Gelber and Associates noted that "near term, the market is sitting in a classic shoulder-season mix of refinery maintenance, softer product cracks and a watchful eye on weekly US inventory data."