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Spot U.S. crude rally narrows

Spot U.S. crude oil futures’ discount to the next trading month, known as contango, hit its smallest levels since January on Friday, reducing the advantages of storing oil in the United States for later delivery.

The discount narrowed to 74 cents a barrel earlier in the session to its smallest since Jan. 11. Oil for June delivery, the front-month in U.S. crude’s West Texas Intermediate (WTI) futures was 78 cents a barrel cheaper to July by 11:15 a.m.

On April 18, the contango was at a near one-month high $1.66.

“To a certain degree, this reduces the economics of storing oil for later delivery,” said John Kilduff, partner at New York energy hedge fund Again Capital. “It’s also feeds the idea that the supply-demand balance is swinging the other way, from surplus to tightness.”

The discount narrowed as spot WTI hit a 2016 high of $45.90 a barrel on Friday, up 76 percent from a near 13-year low of $26.05 struck in February.

While a falling dollar has powered oil rally’s this week, crude prices have also gained steadily in the past two months on optimism that a supply glut will ease between later this year and 2017, even as stockpiles have continued to grow.

Crude oil in storage at the Cushing, Oklahoma delivery hub for WTI rose 1.8 million barrels last week, government data showed. Total U.S. crude inventories are at record highs above 540 million barrels.

Cushing stocks have risen partly due to the advantages of storing oil for later delivery as deferred contracts fetched higher prices to spot WTI. charts show spot WTI in contango since November 2014 as a selloff in oil that began in the middle of that year