Goldman Says Oil's Premium Over 2010 Crude to Narrow (Update1)
By Alexander Kwiatkowski
March 12 (Bloomberg) -- The premium for U.S. oil futures for delivery in Spring this year versus contracts for 2010, is likely to narrow in coming months as rising inventory levels and economic conditions weigh on near-term demand, Goldman Sachs Group Inc. said.
West Texas Intermediate crude oil futures are currently cheaper for those delivered at later dates, a condition known as backwardation, with May 2008 contracts trading near $109 a barrel, and December 2010 near $99 on the New York Mercantile Exchange. Goldman commodity analysts recommend selling the near-term May futures contract and buying December 2010 oil futures, to profit from a narrowing of this difference, or ``timespread.''
``Rising inventories against the weak economic backdrop could trigger a sharp liquidation in net speculative length which would drive timespreads lower,'' Goldman commodity research analysts including Jeffrey Currie in London said in a report dated March 11.
U.S. crude oil stockpiles climbed 6.18 million barrels last week to 311.6 million, the Energy Department said today. The gain was much larger than the 1.68 million-barrel increase forecast by a Bloomberg News survey. Gasoline inventories rose to 236 million barrels, the highest since 1993.
Stockpiles of oil throughout the industrialized nations of the Organization for Economic Cooperation and Development were higher than their five-year average at the end of January, the International Energy Agency said yesterday.
High Inventories
``Given the higher-than-average levels of inventories in February, we believe that front-month WTI prices should trade at a 4.5% premium over the 5-year forward price which stand in sharp contrast with yesterday's 12 percent backwardation,'' Goldman Sachs said in the March 11 report.
Front-month futures, or crude oil for April delivery, traded at $109.45 a barrel on the New York Mercantile Exchange at 6 p.m. London time. That is about 12 percent higher than the price for April 2013 delivery, five years ahead, which was at $97.98.
The opportunity to profit from the weakening in long-term timespreads is likely to diminish over the next few months because of ``renewed fundamental support in the second half of the year,'' the report said. Goldman Sachs forecast year-end WTI oil prices at $105 a barrel.
Goldman analysts said last week they had closed out an earlier recommendation to buy options contracts for December 2008 crude oil.
``We believe that the near-term price risk is skewed to the downside and continue to expect WTI prices to pull back in the spring to $90 a barrel,'' the Goldman analysts said in the earlier report, dated March 7.
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