The April/May spread for NYMEX crude narrowed 9 cents Monday to abackwardation of 3 cents/b, as the M1/M2 spread continues to weaken, sittingon the precipice of contango for the first time since January.
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The same spread for ICE Brent also softened Monday, but remains on moresolid footing. The M1/M2 spread narrowed 6 cents to 16 cents/b.
"One driver behind this relative weakness in the nearby energy contractshas been some long liquidation following recent establishment of recordspeculative crude length by a wide margin," oil consultant Jim Ritterbuschsaid Monday in a note.
The flattening of curves was conveying "bearish overtures" that coulddiscourage length from reentering the market, he said.
Money managers' net length in NYMEX crude futures peaked at an all-timehigh of 483,829 contracts the week that ended January 16, according to USCommodity Futures Trading Commission data.
The latest CFTC data showed net length at 441,124 contracts the weekthat ended March 6, down 19,213 contracts week on week.
The change reflected money managers boosting bearish bets for the firsttime in five weeks, in addition to traders liquidating length.
NYMEX crude's nearby spread flipped into backwardation in January for thefirst time since late 2014.
Steady draws in stocks at Cushing, Oklahoma -- the delivery point for theNYMEX crude contract -- were cited as one catalyst behind the shift fromcontango to backwardation.
But with the pace of withdrawals slowing, and analysts saying buildscould materialize soon, the impact of Cushing storage on NYMEX crude's termstructure seems to be fading.
If Cushing starts to see builds soon, NYMEX crude's structure couldreturn to contango, a note from JP Morgan said last week.
The oil complex began the week lower, paring some of the increases fromFriday, when a broad rally lifted equities and commodities.
NYMEX April crude settled 68 cents lower Monday at $61.36/b. ICE MayBrent settled at $64.95/b, down 54 cents.
NYMEX April ULSD fell 2.19 cents to $1.8647/gal. NYMEX April RBOB settleddown 1.03 cents at $1.8940/gal.
US equity indexes were lower for most of Monday's session. In theafternoon, the Dow Jones Industrial Average was down 164 points at 25,171,while the S&P 500 Index was 5 points lower at 2,781.
--Geoffrey Craig, firstname.lastname@example.org
--Edited by Richard Rubin, email@example.com