Energy investors correctly follow the weekly U.S. Department of Energy report on oil inventories, but it's the interplay between inventories and futures markets – with data available daily – that is driving the spot price.
The chart below shows that the oil price is closely following the steepness of the oil futures curve. (Note that the steepness of the crude futures curve is plotted inversely to better show the trend. In this case, a downward-sloping line indicates a steepening futures curve.) The grey line on the chart is simply the 12-month oil futures price minus the one-month futures price. At the first data point, for example, July 25, 2012, the 12-month future price was $90.97 (U.S.) per barrel and the one-month price was $88.97, making the difference $2 per barrel, as shown.
The trend has been that the steeper the oil futures curve becomes, the further oil prices fall. In February, 2016, for instance, crude prices were mired in a deep funk at just over $26 per barrel. The difference between 12-month and one-month crude was peaking at the time at about $11.50 per barrel.
When the 12-month futures price is far higher than the spot price, North American energy producers prefer to sell forward, committing to deliver oil at a future date for the better price (the practice is far less common in OPEC countries). This means that existing inventory stays where it is, or rises as new production is stored, and this maintains glut-like industry conditions.
Merrill Lynch commodity strategist Francisco Blanch believes that OPEC's production cuts are designed to reshape the futures curve, not increase the commodity price. Mr. Blanch believes the Organization of Petroleum Exporting Countries wants a futures curve that slants lower – where the 12-month futures price is lower than the one-month futures price (this is called backwardation) – which would motivate U.S. producers to sell existing physical inventories rather than contract for future delivery. Backwardation would result in a much faster decline in oil inventories, and stronger spot prices. It would also reduce profitability for shale producers who have been selling at forward prices and benefiting from the current steeply upward-sloping oil curve.
The current spread between 12– and one-month crude is $1.73, well below the three-year average of $3.91 but above the five-year average of 60 cents.
Oil futures pricing is available publicly from the CME website. For investors in energy stocks, it can provide vital indicators for spot prices, oil inventories and the success or failure of OPEC policy strategy.