WTI settled Friday near its previous week's settlement of just over $66/Bbl. Missile attacks on Saudi Arabian oil infrastructure Sunday, March 7, sent WTI soaring intraday to $68/Bbl before giving up all gains, plus some after reports showed the attacks did not affect Saudi oil production.
At $66/Bbl, WTI is at its highest mark since April 2019. Backwardation, measured here by the prompt contract minus the 13th month forward WTI contract, is near the steepest that time-spread has ever been in percentage terms over the past 15 years.. The prompt contract is 11%, or $6.67/Bbl higher than a year in the future. There are arguments for oil continuing to rise, but we urge caution with many bullish catalysts priced in at the moment in our view.
Cal 2022 is trading near $58/Bbl as of Friday. This level has been attractive for many of our clients to utilize a swap, despite the steep backwardation. We urge taking a hard look at locking-in at current price levels.
AEGIS recommends utilizing swaps at current levels. Costless collars can also be attractive for those looking for more upside further down the curve, but this requires giving up a certain amount of guaranteed cash flow as the Put will below the swap. Everyone's portfolio construction is different, so please discuss with our trade desk the right mix.