The U.S. crude oil market lights up red for the first time in nine months: warning signals of oversupply sounded!

In recent times, the global oil market has once again sounded the alarm of oversupply. An important indicator in the US crude oil market - the prompt spread, has dropped into negative territory for the first time. This bearish prompt spread structure appearing for the first time since February suggests that the situation of oil oversupply may come sooner than expected. This change not only reflects the recent abundance of supply but also hints at the challenges the market may face in the future. Specifically, the prompt spread measures the difference between the futures price for immediate delivery and delivery one month later. It was trading at a discount of 5 cents per barrel at one point and settled at a discount of 1 cent. This dynamic has led traders to closely monitor the inventory balance for the year 2025. The International Energy Agency has issued a warning that oversupply is expected to exceed 1 million barrels per day, and has pointed out that if OPEC and its allies resume production next year, inventories may further climb. Although other parts of the US crude oil futures curve currently maintain a slightly bullish spot premium structure, this sign has been enough to raise market awareness. It is worth mentioning that for the first time, a bearish positive prompt spread structure between November and December WTI spot rolled over, which is the first time since January, indicating that traders are increasingly concerned about the recent oversupply. Despite the market being prepared for oversupply in 2025, including the surge in US oil production and the expected return of OPEC+ oil production, the imminent appearance of spot premiums still suggests an increase in supply at the key Cushing storage facility in Oklahoma. The weakness in the spot market has already started to affect the futures market, with the prompt spread for West Texas Intermediate (WTI) crude oil falling to its lowest level since June at the beginning of the month. For those with storage capabilities, although previous futures premiums were relatively small and unlikely to trigger large-scale storage behavior, the persistent futures premiums may still prompt them to consider storing oil in tanks for future selling when prices rise. However, for financial investors, this market structure brings about "negative rolling returns", meaning they will face losses when rolling positions forward. Furthermore, traders also point out that while the current crude oil supply at Cushing is relatively limited, the increase in Canadian crude oil supply, especially the part that can be used to blend with Cushing's domestic low sulfur crude oil, may further enhance the hub's crude oil supply. It is worth noting that this transaction occurred outside the typical three-day window for traders to close out positions after the futures contract expires, further exacerbating market concerns. Overall, the appearance of futures premiums will not only have a significant impact on the financial market but may also trigger a chain reaction in the physical market. With US crude oil production continuing to rise to a new high of over 13 million barrels per day, while the consumption of crude oil by the world's largest consumer country Petrochina has shrunk for six consecutive months, the supply-demand balance in the global oil market is facing unprecedented challenges.