(Bloomberg) -- A key oil market gauge is flashing signs of oversupply in the US, in the latest indication of a looming global glut.
The so-called prompt spread — which measures the difference in price between futures for immediate delivery and those a month later — traded in negative territory for the first time since February. That reflects a bearish market structure called contango, a signal that near-term supplies are ample. At its lowest, the spread traded at a discount of 5 cents a barrel before settling at a discount of 1 cent.
Traders are keenly watching balances heading into 2025, with the International Energy Agency warning of a more-than 1 million barrel-a-day surplus. Inventories could swell further if OPEC and its allies return production to the market next year, the agency said. For now, the rest of the US crude futures curve is still holding onto a slight bullish backwardated structure.
READ: Key Corner of US Oil Market Signals Sooner-Than-Expected Glut
Contango can have significant ripple effects across both the financial and physical market. For those with access to storage, sustained and deep contango can make it profitable to put oil in tanks and sell them at a later date for higher prices. For financial players, the structure creates a so-called “negative roll yield” meaning investors lose money when they roll positions forward.
Inventories at the delivery point for futures at Cushing, Oklahoma are largely in line with recent seasonal norms but US crude production has continued to surge to fresh records above 13 million barrels a day. That comes as oil consumption in China — the world’ biggest crude consumer — contracted for six straight months through September, according to the IEA.
(Updates with settlement price and chart)
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