Publications: Notes at the Margin

On WTI Backwardation, Falling US Consumption, and the Impending Closure of European Refineries (June 2, 2014)


This Notes at the Margin addresses three subjects. First, we focus on WTI. Several organizations issued reports last week predicting a decline in this crude’s backwardation. In our view, however, cash prices will remain strong unless investors reenter the market and bid up forward prices.


The second part of the report examines declining US consumption. Last week, the US Bureau of Economic Analysis reported on consumer expenditures through April. The data surprisingly reveal that consumers have cut back. The implications for petroleum warrant concern.


To conclude our report, we turn to European refineries. It is time for three million barrels per day of European refining capacity to close. If this happens, the shutdowns will alter global market behavior.


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