Shortening the length

Crude oil prices slipped, with ICE Brent front-month prices at reaching 71$/b, as money managers continued to aggressively reduce their net length across WTI & Brent instruments (-14k lots). A contango started to materialize at the prompt of the curve, with ICE Brent at a 4 cents contango. WTI prompt spreads remain in backwardation, at 7 cents, but could also come under pressure. However, diesel cracks remained stable during this correction, which could reflect the tightness of some refined product markets, compared to a looser crude oil market. Indeed, the US strategic reserves’ auctions closing on January the 4th for 18 mb of sour crude delivered during February or March has loosened the prompt balances. If crude buyers are willing to take a quality risk, they will enjoy deeply discounted crude volumes.