The Oil Price Rally Is Over

Energy Blog

Last week I wrote that the the oil price rally was ending.  To some it may look like a price collapse now. I don’t think so but the price rally is clearly over for a while.

Today, WTI futures price fell -$2.80 (-5%) and Brent fell -$1.45 (-2%). The spreads, however, are revealing.

The WTI 12-month spread fell -$0.92 from $3.65 last Thursday to $2.73 today (Figure 1). That’s a -25% drop in one business day. The spread has fallen -$1.89 (-41%) since March 29. It has decreased -$3.77 since March 5. That’s the biggest drop since prices began to collapse in early 2020.

Figure 1. WTI 12-month spreads are collapsing. Spread fell -$0.92 (-25%) from $3.65 on April 1 to $2.73 on April 5. Spread has fallen -$1.89 (-41%) since March 29. Source: Quandl & Labyrinth Consulting Services, Inc.

Front-month price moved to its lowest level in more than 2 months at $58.65. The forward curve is in prompt-month contango and its term structure is flatter than it’s been for weeks (Figure 2). At the same time, it doesn’t look like a collapse in this context, at least not yet.

Figure 2. WTI 12-month spread fell -$0.92 (-12%) from $3.65 to $2.73 on April 5. 6-month spread decreased -$0.37 (-29%) from $1.28 to $0.91. Front-month price decreased -$2.80 (-5%) from $61.45 to $58.65. Source: CME & Labyrinth Consulting Services, Inc.

Brent 12-month spreads reversed today from the lowest level since January last week. The spread increased +$0.48 from $2.42 to $2.90 on Monday, April 5 (Figure 3). That looks less dire than WTI spreads..

Figure 3. Brent 12-month spread reversed from lowest level since January week ending April 1 and increased +$0.48 (+20%) from $2.42 to $2.90 from April 1 to Monday April 5. Source: Quandl & Labyrinth Consulting Services, Inc.

Both WTI and Brent prices are about +$0.60 to $0.70 higher in early trading as I write at 10:00 p.m. Houston time. I don’t think prices are collapsing but it is improbable that they will regain March highs any time soon.

The rally was over a few weeks ago but until late last week, there was hope it might resume its upward momentum. That seems unlikely for now. I doubt that the Saudi oil minister is feeling too good about OPEC+’s  decision last week to increase output and his decision to raise Asian prices.

Art Berman is anything but your run-of-the-mill energy consultant. With a résumé boasting over 40 years as a petroleum geologist, he’s here to annihilate your preconceived notions and rearm you with unfiltered, data-backed takes on energy and its colossal role in the world's economic pulse. Learn more about Art here.

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  1. Peter on April 10, 2021 at 1:28 pm

    I believe it was a couple months ago (?) that you were thinking the price of oil would likely start moving up in May/June time frame? Am I mistaken or have you revised your position due to the Saudi action and/or the price spreads as explained above?

    • art.berman on April 10, 2021 at 2:04 pm


      In my December 1, 2020 post “HOW HIGH WILL OIL PRICES GO? WHAT THE MARKET KNOWS”, I stated “Previous price-volume excursions suggest that WTI could go as high as $60 per barrel if markets continue to feel supply urgency. At the same time, that history does not suggest that prices will be permanently higher.”

      I didn’t put a time line on that.

      The recent OPEC+ decision led to somewhat lower prices but I doubt a decision to maintain cuts would have resulted in higher prices–price had already decreased from its peak in early March weeks before the OPEC+ meeting.



  2. [email protected] on April 6, 2021 at 5:19 pm

    .Sorry Mr. ART where can I find links in reference to brent and wti oil spreads ??

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