The Forties-Midland Arbitrage Squeeze: Exploiting Expiring Contracts and Pipeline Pressures

The widening premium of North Sea Forties crude over U.S. WTI Midland futures in June 2025 has created a fleeting arbitrage opportunity, driven by expiring futures contracts and structural supply bottlenecks. As June's expiration clock ticks, traders are racing to lock in gains before liquidity vanishes—a window narrowing faster than the bid-ask spreads themselves. Here's why the Forties-Midland spread is a must-watch trade, and why urgency is critical.

The Squeeze is On: Premiums and Liquidity Collide

As of June 6, 2025, the Forties premium over WTI Midland futures has surged to over $0.80 per barrel, with bids from traders like Vitol and Gunvor pushing prices to dated Brent +$1.10 FOB Hound Point. Meanwhile, WTI Midland futures face a liquidity crunch, trading at $67.80 for June delivery, as Permian Basin production exceeds Gulf Coast pipeline capacity by 500,000 barrels/day. This imbalance has widened the Midland-Houston (MEH-Midland) spread, squeezing Midland's valuation further.

The key to this trade lies in the narrowing bid-ask spreads for June-dated contracts. With expiration looming, liquidity is consolidating into a “now or never” window. Traders are aggressively bidding for Forties futures, while Midland's backwardation (lower prices for near-term contracts) creates a contango-backwardation mismatch—a classic setup for mean-reversion arbitrage.

Ask Aime: How to profit from the Forties crude oil premium over WTI Midland futures?

Why the Clock is Ticking: Risks and Exit Strategies

The urgency stems from two existential threats:
1. Expiring Contracts: June-dated futures will settle by June 20, after which liquidity dries up entirely. Bid-ask spreads are already tightening, as seen in Repsol's recent sale to TotalEnergies at dated Brent +$1.50 CIF Rotterdam—a premium that underscores the narrowing window.
2. Structural Risks:
- OPEC+ Policy Shifts: A potential production cut could depress Forties prices, undermining the spread.
- Pipeline Relief: The delayed Cactus II pipeline, if operational by mid-2025, might ease Midland's oversupply, narrowing the spread artificially.

The Trade: Go Long Forties, Short Midland—Before June 20

The optimal strategy is to go long Forties futures and short WTI Midland swaps, leveraging the contango in Forties and backwardation in Midland. This plays to two dynamics:
- Physical Arbitrage: Secure Forties cargoes at bids like dated Brent +$0.95 FOB Hound Point and hedge with Midland swaps.
- Futures Spread: Exploit the widening differential, which has averaged +$0.63 but spiked to $1.10 in recent weeks.

Exit by June 20 to avoid post-settlement illiquidity. For example, a $0.80 spread on 1,000 contracts yields $80,000 in profit—before factoring in premium expansions.

Final Call: Act Now—or Miss the Window

This is a high-conviction, short-term trade with a defined expiration date. The structural factors—Permian overproduction, North Sea decline, and expiring liquidity—are not easily reversible before June's close. Traders like Mercuria are already moving, and bid-ask compression means delays could mean missing the premium entirely.

The risks are real, but the reward-to-risk ratio is compelling. If you're positioned by June 15, you can still capture this once-a-year opportunity. After that? The clock stops—and so does the game.

Recommendation: Execute the long Forties/short Midland spread immediately, targeting a close by June 20. Monitor OPEC+ headlines and pipeline updates—this is a race against both time and fundamentals.

Josh Nathan-Kazis
June 6, 2025