Exacerbated concerns over oversupply: US crude oil futures discount rate hits 20-month low

On Monday, the spread between the near-month crude oil futures in the United States and the July futures contract reached its lowest level since January 2024, primarily due to OPEC+ increasing supply, while seasonal refinery maintenance in the United States suppressed demand for prompt crude oil. The narrowing of the futures contango spread (i.e. the portion in which the spot delivery price in the market is higher than the later delivery price) indicates that investors are reducing profits from selling oil in the spot market because people believe that the supply is sufficient in the near term. On Monday, WTI crude oil futures for delivery in November closed at $59.49 per barrel, while the May 2026 contract closed at $59.02 per barrel, forming a 47-cent spot premium, the smallest since January 16 last year. If the oversupply turns into a premium, then U.S. oil futures will be in a forward premium state for the first time since January last year. Andrew Lipow, president of consultancy firm Lipow Oil Associates, said: "The narrowing of this premium indicates an oversupply in the short term, and then concerns arise that supply will become tight again when future demand increases. We see OPEC+ increasing supply, coupled with reports of more oil stored in floating tanks, putting pressure on the front end of the curve, while seasonal refinery maintenance in the United States also affects the front end." OPEC+ has already raised its oil production target by more than 270,000 barrels per day this year, equivalent to about 2.5% of global demand, raising concerns about oversupply. Shohruh Zukhritdinov, an oil trader in Dubai, said that this has caused the WTI crude oil curve to flatten, as the market now expects a less tight supply-demand balance at the beginning of 2026. Meanwhile, according to data from the U.S. Energy Information Administration, the average refinery utilization rate in the United States has declined for the fourth consecutive week to 92.5%, reaching its lowest level since the first week of June, when the U.S. summer driving season began. Zukhritdinov said: "Increasing physical inventories and reduced refinery production mean a decrease in demand for prompt crude oil, reducing the pressure on prices to rise."