Bloomberg News

Goldman Sachs Recommends Selling May-June WTI Crude Spread

February 07, 2012

(Updates with analyst comment in third paragraph.)

Feb. 7 (Bloomberg) -- Goldman Sachs Group Inc. recommended selling contracts of West Texas Intermediate crude for delivery in May and buying those for June, as rising inventories at the U.S. storage hub will put pressure on short-term prices.

May contracts of the crude were today 59 cents cheaper than June on the New York Mercantile Exchange, having doubled their discount this month. WTI’s record premium to blends from the Midwest and Canada will lead to increased imports of these alternatives into Cushing, the delivery point for WTI, according to Goldman Sachs. That would cause the discount of May versus June to widen.

“We are now starting to see crude oil rushing to Cushing from Canada and the Midwest,” David Greely, the bank’s New York-based head of energy research, wrote in a report. “Cushing inventories will rise sharply in coming months, putting downward pressure on time spreads.”

WTI futures for immediate delivery are cheaper than supplies for later in the year, a condition known as contango which reflects a surplus in the short-term. Crude inventories at Cushing, which typically drive the difference between monthly contracts, have increased by 2.8 percent this year to 30.1 million barrels, according to data from the Energy Department.

Goldman Sachs closed its recommendation to place a two-part trade consisting of selling the difference between WTI and Brent contracts for March, and buying the spread in the December futures of the two grades. The suggestion, first issued on Nov. 22, would have made investors who followed it a profit of $5.30 a barrel, the bank said.

--Editors: Raj Rajendran, Rachel Graham.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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