Ahead of the delayed OPEC+ meeting on Thursday, there are indications oil supply is running ahead of demand, highlighting the thorny challenge facing the cartel as it prepares to set output policy for 2024.

With futures well down from September highs, widely watched timespreads for global benchmark Brent and US counterpart West Texas Intermediate have softened, signaling ample supply, while US stockpiles have jumped. In addition, other more esoteric indications in the physical market, including differentials between specific grades, have been flashing warnings.

The global oil market is fixated upon the meeting of Organization of Petroleum Exporting Countries and its allies, who’ll need to address what analysts see as burgeoning global supply, as well as an internal dispute on quotas. At present, Saudi Arabia and Russia are expected to extend voluntary supply cuts, and market watchers say deeper group reductions are also possible. Their decisions will have a profound impact on trading this quarter, as well as next year.

“Sentiment in the oil market remains negative,” said Warren Patterson, head of commodities strategy for ING Groep NV in Singapore. “There is a growing possibility that we see a deeper cut from the broader group. In doing this, the group would provide good support to the market going into 2024.”

Futures Curve

Of primary importance is the structure of the futures curve. The gap between WTI’s two nearest contracts has dipped into a bearish contango, with near-dated prices at a 28-cent-a-barrel discount to later-dated ones. A month ago, the opposite pattern — backwardation — held sway, with a premium above 80 cents.

Brent’s prompt spread, meanwhile, fell into contango earlier this month for the first time since June, although it’s since recovered a little ground.

Longer-term spreads have also come off. Brent’s six-month gap was last at $1.05 a barrel in backwardation compared with nearly $4 a month ago.

In the US, stockpiles have been swelling. Inventories have rebounded since hitting the lowest this year in September, rising in five of the past six weeks.

Other indications of ample near-term supply include sour crude grades in the Mediterranean trading at ever-widening discounts. For one, Basrah Medium is now offered at a discount of about $2.50 a barrel to its official selling price, a level many traders deem very low. Prices of other grades including Johan Sverdrup have also sunk.

Asia’s appetite for oil is also softening, with the premium of Oman futures versus Dubai swaps declining this month. Spot differentials of key Middle Eastern grades including Murban have also been falling on weaker demand from buyers in the region, according to traders.

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