West Texas crude oil futures were under heavy selling pressure Tuesday morning ahead of regular trading at the New York Mercantile Exchange on expiration day for the February spot contract.
February West Texas crude was down $2.11 to $34.40 a barrel, while February Brent was down 53 cents at $43.97 a barrel on the ICE. Reformulated gasoline was off 6 cents at $1.10 a gallon, heating oil 8 cents lower at $1.39 a gallon, and near-month natural gas is 12 cents off from Friday's closing price at $4.68 per million British thermal units.
The Nymex spot oil contracts almost always fall in price on their expiration day because any traders still holding the contracts after they expire are required to take possession of physical oil. A record-high contango spread between the February and March WTI contracts is adding to the downward pressure on the spot contract.
The contango provides a risk-free arbitrage opportunity for traders who can buy the spot contract, sell the second-month contract and then store the physical oil during the interim. Although the actual number of participants is not clear, the current contango is so valuable that a huge influx of speculative traders appear to have open positions in the Nymex WTI market.