Publications: Notes at the Margin

Crude: Getting Tighter (December 23, 2019)


This week, our update the Brent and WTI data indicated the following:

  • North Sea supplies, as measured by excess returns to storage for Brent, are tight. The spot return of February crude is a negative ninety-three percent. There is no incentive to store. None. Forward returns are negative as well but in the teens and within the two-standard-deviation normal range.
  • WTI supplies are tight. However, returns to storage are in the middle of the normal range.
  • The total open interest in the three crude contracts has changed little over the last month. The shifts in the data are frankly rather boring. The total open interest in the three crudes contracts was 5.406 million contracts at the end of November. Friday, open interest had increased by a whopping sixty-one thousand contracts.
  • The price spread for WTI is moving precisely within the two standard deviation range for the supply of storage, as can be seen from Figure 1 (page 2). Stocks held in Cushing need to drop by ten to fifteen million barrels to bring strong backwardation.


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