Oil futures curve at risk of more weakness as demand wanes

The U.S. oil futures curve is showing signs of strain and may soften further in the coming weeks with Asian refiners’ appetite for American barrels diminishing.

The spread between West Texas Intermediate crude for nearest delivery and its second-month contract is trading in the deepest contango — a bearish market structure indicating oversupply –since January. The weakness is threatening to spread to the next few contracts along the curve. American drillers are pumping at normal levels again following last month’s deep freeze, with no outlet for their supply.

Refiners in Asia, America’s largest buyer of domestic crude, will start planned work at crude processing plants next month. This along with high stockpiles in China will reduce the Far East’s intake of oil. Meanwhile, some U.S. Gulf Coast refineries are still recovering from February’s arctic blast.