Oil Futures Point To Higher Oil Prices

The EIA reported another strong week of inventory declines in its most recent data release, revealing a drawdown of 6.5 million barrels for the week ending on August 4. That means that the U.S. has now pulled more than 60 million barrels from storage since inventories peaked in March at 535 million barrels.

More importantly, there is growing evidence to suggest that the inventory drawdowns will continue and might even accelerate. That evidence can be found in the futures market, where changes in longer-dated contracts are no longer trading at a much higher price than near-term prices.

For much of the past three years, the oil futures market has been stuck in a state of contango – a situation in which oil contracts for the next month are trading at a steep discount compared to oil futures that would expire in six or twelve months. It may seem like some esoteric financial nonsense, but the contango was a glaring symptom of a market that was suffering from a glut of supply…

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