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Oil to Enter Backwardation ‘Rapidly,’ Barclays Says

Oil markets are poised to enter backwardation, with prompt-delivery prices higher than those for later supply, as demand for crude increases around the world, according to Barclays Plc.

“Global spare crude capacity has fallen this year and is likely to end the year at only a little above 5 percent,” a team led by Paul Horsnell, head of commodities research at Barclays Capital in London, wrote in a report yesterday. ``We expect a more volatile and backwardated market to emerge rapidly.”

West Texas Intermediate crude, the U.S. benchmark grade, hasn't been in backwardation since November 2008 on the New York Mercantile Exchange. The January delivery contract traded 56 cents below the February contract on the Nymex at 10:40 a.m. London time today. Oman futures on the Dubai Mercantile Exchange went into backwardation Nov. 15, with the January contract trading at $83.50 a barrel today, a 3-cent premium to February.

World oil demand rose by 2.41 million barrels a day this year, the second-strongest rate in the past 30 years, according to Barclays.

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