This Key Indicator Is Pointing To Higher Oil Prices

• Wild spikes in the prompt timespread for oil product futures in the United States have suggested that crude oil supply is set to tighten further
• The 1-month timespread has logged intraday differences of as much as $0.54
• "There is still plenty of momentum behind the oil rally and the fundamentals remain extremely favourable," Craig Erlam, senior market analyst at OANDA, told Reuters this week.

Wild spikes in the prompt timespread for oil product futures in the United States have suggested that crude oil supply is set to tighten further, adding upward pressure to prices, Bloomberg has reported.

According to the report, the timespread, which is the price difference between oil derivative futures for immediate delivery and those for delivery during the next month, has logged intraday differences of as much as $0.54.

It normally moves by just a few cents a day.

According to some observers, this means that the government may soon start releasing oil from its strategic reserve—something there have been reports about as Washington struggles to keep prices at the pump under control.

"Cushing is the only place where there's surplus crude and that's going to start being pulled quickly," according to hedge fund manager Gary Ross, who spoke to Bloomberg. "That sets the stage for an explosive move on WTI structure. It has doubled in the last two days and it could double again quite quickly." 

Some are already talking about three-digit prices for oil before this year's end.

"There is still plenty of momentum behind the oil rally and the fundamentals remain extremely favourable," Craig Erlam, senior market analyst at OANDA, told Reuters this week. "Will it be a surprise to see oil back in the triple digits later this year? Probably not."

In the United States, "The market is worried about Cushing balances as October is looking like a draw," ICAP energy specialist Scott Shelton told Bloomberg. "We could see stocks under 30 million barrels by the end of the year."

U.S. prices at the pump have jumped by $1 per gallon since last December and by $0.40 over the past six months. West Texas Intermediate, meanwhile, has hit the highest in seven years, at over $80 per barrel.

By Irina Slav for Oilprice.com

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