The structure of the oil market is shifting with the one-year price curves for global Brent and US crude converging, a signal that traders say may portend the next leg down in the price rout.

US oil firmed over the past two months and global Brent weakened, but the two are now changing course. The reversal undermines conventional wisdom that the US market is rebalancing on a pickup in demand and Brent is backlogged with barrels in floating storage.

While punters watch oil prices bounce up and down, real oil traders tend to monitor so-called "term structure" or the differences in contract prices for future delivery. That structure is a key indicator of the market's health.

"WTI is playing some catch-up to Brent structure that's been weaker for some while, reflecting global realities," said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston. "A lot of the speculative lengths in the front of the WTI market - hedge funds, ETFs - have exited the market less than gracefully."

The marked change in sentiment was evident on Tuesday, when the one-year Brent spread traded at parity to the one-year WTI spread. Three weeks earlier, it traded at a $2.65 a barrel difference.

The view ahead is a muddled one, according to traders and industry analysts. They say that while the U.S. structure looks particularly bearish going into the fourth quarter and 2016, the Brent market's recent strength could be short lived, aside from potential geopolitical risk.

One trading source said that while Brent and WTI structures are now aligned, "the markets are both oversupplied and underdemanded."

Earlier this month, a large number of bearish WTI calendar-spread options for the remainder of the third quarter, fourth quarter and first quarter 2016 were executed, with strikes at negative 50 and negative 75 cents.

Supply, supply everywhere

With a near 50 per cent cut in benchmark US crude since last summer, analysts have tried to pinpoint exactly when US crude production would peak, with many expecting the second quarter.

Yet, energy firms' resilience has startled investors, particularly with production increases continuing, despite a drastic cut in rig counts.

Last week, the US Energy Information Administration raised its 2015 US crude oil production growth forecast by 30,000 bpd to 750,000 bpd.

"I think WTI looks like a dog in the second half of the year," said a second trading source.

The problem is that while US refineries are running at the strongest levels seasonally in a decade, it hasn't put a dent on stockpiles at Cushing, Oklahoma. Inventories at the storage hub are just 5.5 million barrels shy of their record, EIA data shows. With refineries moving into maintenance reducing the need for crude, there's a fear that the hub may near capacity.

Last week's delay of Enbridge Inc's Line 9 start-up into 2016 exacerbated those concerns, as it will keep flows of Canadian crude to the south instead of directing the crude to eastern Canada.

"On balance, we think there's more downside to WTI spreads. The battle is between how much demand falls vs how much supply falls. So far, supply has been resilient," said Amrita Sen, chief oil analyst at Energy Aspects in London, adding that the improved Brent spreads will be short lived because supply is plentiful.

In the North Sea, August barrels and floating storage are being used absorbed as refiners in Northwest Europe come out of maintenance, but the threat of extra barrels from the Middle East looms. Meanwhile, Asian refineries were said to have bought Latin American crude instead of West African, increasing overhang in the market.

"There are all those cargoes out there and still many ships that haven't found a port yet," said Tariq Zahir of Tyche Capital Advisors. "No one is buying it and the physical markets are still weaker than futures."

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