With the spread of coronavirus the crude oil curve went from backwardation to a super contango. Transcript: Contango vs Backwardation Welcome to Oil 101.

With the spread of coronavirus the crude oil curve went from backwardation to a super contango. These terms refer to the shape of the futures curve of a commodity such as gold, silver, wheat or crude oil. The oil market is tightening and this is reflected in the deepening backwardation of the forward curve. Jun 12, 2025 · It's a kind of a physical representation of the current status of the market, with the curve typically broadly backwardated, or broadly in contango backwardation when you're tight and supply is short and need to draw inventories, and contango in the opposite when you need to kind of finance inventory storage. 9–Oct 3, 2024 among a random sample of U. Mar 20, 2021 · Crude oil prices have fallen drastically since the beginning of 2020 driven by the lethal double blow of economic contraction caused by the 2019 novel coronavirus disease (COVID-19) and suspension of an OPEC-NOPEC (OPEC+) deal due to defection of Russians. The impact on prices and balances has been severe with Brent and WTI falling by more than 50% over two weeks in March 2020. S. In a contango market, the upward-sloping curve reflects expectations that future prices will be higher than current levels. This article breaks down how contango and backwardation work, why they happen, and how traders can use them to their advantage. But suddenly this week, the super contango pattern shifted into a pattern called backwardation, if only briefly. No cash value. You hear a lot about contango and backwardation of the oil price curve in the financial press. Feb 6, 2020 · Art : Erik, I think that this coronavirus is a huge deal. As global economies ground to a halt and supplies mounted, the entire curve shifted down—dramatically so in the front months. Mar 2, 2020 · Benchmark Dubai crude futures spreads flipped from contango into muted backwardation during mid morning trade in Asia Monday, the first trading day of March, despite bearish macroeconomic factors related to the spread of the coronavirus continuing to dominate markets. The large contraction in oil demand due to the spread of COVID-19 and the dissolution of the OPEC+ agreement has combined to generate large shockwaves through oil and financial markets. May 29, 2020 · A contango market structure means the current value is lower than it will be in later months and encourages traders to store oil to resell it in the future. crude into deep Apr 4, 2024 · In the Indian market, the equity and commodity markets used words like Badla and Undha Badla. ” The forward curve is a form of forecasting. There have undoubtedly been short-term impacts on supply and demand, ranging from a collapse in oil demand to supply disruptions at individual mines as a result of COVID-19 infections among mine employees. On the previous sugar chart, however, you could see exactly the opposite situation – the term structure curve was falling. The front/second month spread for ICE Brent flipped into a 12 cents/barrel contango on July 8. Please visit each partner activation page for complete details. Feb 2, 2023 · Crude Oil, CL Plots Futures Curve: Futures contract prices over the next 3. 1. It’s however important to note that the A contango market implies oil traders believe crude prices will rally in the future, encouraging them to store oil now and to sell at a later date. The futures market for Shell BP crude oil is currently in a state of contango. ” Jan 10, 2024 · Find out what contango and backwardation is and what is happening in the oil market right now, with technical and fundamental analysis. And similarly, the definition of backwardation is when the futures contract price of a commodity is less than Apr 22, 2020 · Even in more normal markets, the structure of the forward curve “backwardation” and “contango” is a source of confusion – mystery even. It has also pushed rates With the spread of coronavirus, the crude oil curve went from backwardation to a super contango 2 3 Click on the Bloomberg CCRV charts on the right. Apr 9, 2025 · The shape of the oil futures curve is rapidly shifting into contango — a fresh sign that traders are hastily dialing back their expectations for global demand this year. When the spot price is higher than the futures price, the market is said to be in backwardation. Demand is weak today Sep 3, 2024 · Example of Contango Contango and backwardation are often found in the crude oil futures market, given that the price of this widely used commodity is highly volatile. Nov 6, 2024 · Conclusion Backwardation and contango are essential concepts in the crude oil market, each reflecting unique market expectations and economic conditions. May 24, 2019 · Theories of backwardation: buyer risk premium, undersupply, and disruption risk premium. The X axis contains the various contract expiration dates while the Y axis contains the corresponding futures prices. With the spread of coronavirus, the crude oil curve went from backwardation to a super con tango. Mar 28, 2024 · Traders use backwardation to profit by selling short at the current price and buying at lower futures prices. Mar 12, 2021 · The near-term WTI contract at $65. 80/Bbl is $6. When this is flipped to Backwardation(As the above; contract prices decreasing into the future): it's a Analyzing the Market Microstructure Implications of Oil Futures and Spot Prices for Market Participants This article looks at how the escalation of the Russo-Ukrainian conflict and the ongoing response to the COVID-19 pandemic contributed to crude oil price volatility and a surge to over $120 a barrel in 2022. Higher prices in the front of the curve encourage oil traders Mar 15, 2022 · Source: Refinitiv Workspace Reverting to the current market environment, we can go one step further to assess the degree of backwardation in brent crude using Refinitiv Datastream. Today we’re going to talk about contango vs backwardation. " While contango has occurred in the past in oil futures markets (most recently in 2005 - 2006), past occurrences have always been "partial" contango--where prices increase for some years, but decrease beyond that. Super-contango usually occurs when the inventory space to store the physical commodity is running out due to excess supply – meaning that the cost of carry (the cost of storing a physical commodity) in a futures contract increases. contango in commodity futures, their impact on trading strategies, roll yields, and market dynamics. A Dec 20, 2017 · Backwardation Contango is therefore clear – with the increasing time to expiration, the prices of contracts are rising. Eventually The Commission of the European Communities, in a report on agricultural commodity speculation, defined backwardation and contango in relation to spot prices: "The futures price may be either higher or lower than the spot price. Apr 29, 2025 · FAQ About Oil Futures' "Smile" Pattern What causes backwardation in oil futures? Backwardation typically emerges from supply and demand imbalances creating immediate market tightness. Click on the Bloomberg CCRV chats on the right. A market is said to be in Backwardation when the spot price is higher than the forward price of the futures contract. While vast cuts by producer countries and renewed fuel consumption from easing coronavirus lockdowns may soon rebalance oil supply and demand, some analysts and traders see a glut in storage Aug 21, 2023 · By connecting these points, the curve’s shape—whether in backwardation or contango—reveals market expectations about future supply and demand, the cost of carry, interest rates, and other factors. Feb 18, 2020 · Weaker demand for raw materials in China has caused Brent crude, the international benchmark, to fall more than 10 per cent in less than a month to about $57 a barrel. Conversely, when a market is in backwardation, the forward price of the futures contract is lower than the spot price. Feb 10, 2018 · 1. c Mar 6, 2017 · WTI finished the week down 1. Sep 5, 2024 · We want to look more closely at contango and backwardation. The premium above the current spot price for a particular expiration date is usually associated with the cost of carry. As a result, factories, offices and shops remain shut. 2. Apr 9, 2019 · Crude oil: How backwardated can it go? OPEC+ production cuts are working. Aug 22, 2020 · Before the coronavirus pandemic in 2020, the oil futures curve was trading in backwardation, with the front months commanding a premium over deferred months. When price is up (under supply), producers are incentivised to produce more to capture higher profits, pushing prices down in the future as demand-supply becomes more balanced. The contango in the Brent curve seems to suggest fatigue in oil demand, some say. The opposite of a contango market is a market in “backwardation. An especially skewed spread for oil futures or “super-contango” emerged last month, prompting traders to seek quick bargains, store the oil and sell at a greater a profit later. Apr 17, 2020 · The forward curve in the NYMEX WTI crude oil futures market highlights the contango in the energy commodity. 5 years; to easily visualize Backwardation Vs Contango(carrying charge) markets. May 26, 2020 · A large portion of oil demand has been temporarily erased by measures related to the Covid-19 virus, and parts of the industry could need life support to ensure their survival through this period as prices tumble. This typically occurs in commodity markets, such as oil, gold, or wheat. The reverse, when future prices are lower and the curve slopes downward, is called “backwardation. In this comprehensive article, we’ll explore the definition, causes, and examples of backwardation, along with its pros, cons, and differences from contango. In a backwardated, or downward sloping curve, crude oil consumers are willing to pay a higher price in the present than in the future. com perspective, can offer valuable insights into these market conditions. Learn more about futures trading and what these terms mean for hedgers and speculators. Expert-supported study help for tough course questions. When a market is in contango, the forward price of a futures contract is higher than the spot price. . Which one shows the curve going from backwardation to super contango? Feb 18, 2022 · The phenomenon of backwardation illustrates one of the reasons why oil is in short supply right now. Apr 21, 2020 · West Texas Intermediate crude prices for future delivery have risen well above the spot market—a situation known as contango—and that can encourage traders to store oil. What is a super-contango? Super-contango is when the spot price for a commodity is trading dramatically below the futures price. This is often depicted by an upward-sloping futures curve, which reflects that the price of the Jan 10, 2022 · A sharp fall in oil inventories and optimism over a recovery in demand despite the spread of the Omicron coronavirus variant have pushed the market structure for Brent and U. Oct 5, 2022 · When future prices are higher than current prices, and the forward curve is sloping upward, it’s called “contango”. Usually if it turns contango, it’s only the front of the curve. Step-by-step breakdowns. Ask away. 74 per barrel. Embracing a forward-looking approach, much like the oil-profits. These terms, contango, and normal backwardation refer to the pattern of future prices over time. And vice versa. financial-spread-betting. Big study breakthroughs. In contango, traders are willing to pay a premium to receive a commodity at a future date, expecting its price to rise over time. A futures curve can be plotted on a chart of a particular contract by using an X and Y axis. Contango and backwardation are terms often used within commodity circles. Mar 18, 2020 · If crude oil rallies, and the contango declines or moves back into backwardation over the life of the trade, it will hand over a massive bonus for those holding cash and carry trades as they can Jun 11, 2025 · Either the front of the curve has to dip into contango and the rest of the prophecy be foretold, or it basically, the speculators and the forecast of the market need to revert to kind of flip back up through the belly, and then you have that broad backwardation re-established. I worry that this could have terrible consequences for the whole global economy. Jun 26, 2025 · Learn about backwardation vs. This type of contango is Jul 9, 2024 · Contango vs. Which one shows the curve going from backwardation to super contango? Chart 1 Chart 2 Chart 3 Chart 4 Show transcribed image text coxacperova. Carrying charge (contract prices increasing into the future) = normal, representing the costs of carrying/storage of a commodity. For instance, the crude oil market was in super-contango in late 2008 and early 2009 due to a reduced demand for crude oil amid the financial crisis despite rising supplies. Dec 2, 2023 · A much larger loss in the case of high inventories is nearly exclusively explained by an isolated event that occurred when oil price and time spreads recovered from super-contango levels set at the onset of the Covid-19 pandemic. It could change if the oil market switched to backwardation. Feb 4, 2020 · The spread of the coronavirus means the Lunar New Year holiday has been extended in much of China and travel restrictions are in place. The working definition of contango is when the futures contract price of a commodity is greater than the current spot price. Solution The correct answer is C. Sep 20, 2013 · The 1st-13th month spread for WTI crude oil has steepened since last year and grown at a particularly high rate over the last month, with the spread reaching an all-time high of $14. and the world and the return of previously withheld production from OPEC+ and North America have combined May 5, 2020 · Consumption of crude oil in the United States has plummeted since the start of the COVID-19 pandemic, and production was unable to adjust quickly to these abrupt changes. Which one shows the curve going from backwardation to super contango? There are 2 steps to solve this one. Apr 30, 2025 · A spread of the Brent crude price against the prices of refined products — petrol and diesel — made from a barrel of oil gives an indication of the profitability. It could mean that the market sees higher prices coming in the spot crude oil market. May 27, 2024 · Crude oil markets are not only influenced by supply and demand dynamics but also by the concepts of contango and backwardation. This extreme form of backwardation was due to a lack of storage capacity for the excess oil supply, forcing prices down as traders scrambled to offload contracts. 2018 started on a positive note for oil markets with Brent March prices breaking 2020 through $70 a barrel for a few days and all the key international crude oil benchmarks flipping into backwardation. Traders either think future prices will be higher or lower than current prices. Normal Backwardation: An Overview The shape of the futures curve is important to commodity hedgers and speculators. Jun 7, 2012 · A contango market is often confused with a normal futures curve; and a normal backwardation market is confused with an inverted futures curve. Jan 18, 2010 · The West Texas Intermediate [WTI] crude oil market went into contango back in June 2008 and reached an apex super contango in late December. Super-contango results in a greater futures spread between nearby contracts and deferred contracts. Mar 15, 2022 · For comparison, exhibit 2 displays the brent crude curve during the trough of March 2020 where the market was trading in contango as demand for oil collapsed, leaving supply without a home. A backwardated curve can mean that oil is in higher demand today than what is expected in the future. Nov 26, 2021 · The oil futures curve was pummeled on Black Friday as the wave of selling sparked by the new Covid-19 variant spread beyond headline prices. 82 per Nov 20, 2020 · The fall in the contango spread could point to fewer concerns about crude oil’s demand-supply imbalance. In other words, the more distant contracts were cheaper in February than the closer ones. On February 12, 2009, the price of crude oil reached the lowest Mar 19, 2024 · Contango and backwardation both describe the slope of a forward-facing futures curve in the futures market. Backwardation is more frequent with lower crude inventories. Nov 24, 2024 · Contango and backwardation are terms used in commodity futures markets. May 20, 2008 · Backwardation is the historical norm in oil futures markets, and it is conventional wisdom that there are fundamental reasons for this "normal backwardation. (Fig. While we remain constructive, we see limited further upside in the near-term for the flat price Apr 12, 2022 · That could in turn push the curve into contango, a market structure that signals oversupply where prices for prompt delivery trade at a discount to those for delivery in the future. Yet, there is still a wide uncertainty engulfing the oil market, with very divergent views among market observers about how the oil price path could evolve in 2018, with some revising upwards Abstract On 20 April 2020, the West Texas Intermediate (WTI) crude oil price dropped to negative levels for the first time in history. These high price levels, which have not been seen since 2008, occurred just two Want to learn more about contango and backwardation? Read our ultimate guide to contango and backwardation to learn what you need to know. Contango means upward sloping 4 days ago · Contango and backwardation are terms used to define the structure of the forward curve. Treasuries—but few have had a crazier time than crude oil: from total collapse in 2020 to the brink of $100 a barrel The oil forward curve is generally backwardated due to the demand-supply curve dynamics. Respondent base (n=712) among Dec 13, 2023 · For the first time in more than a year the oil market is flashing bearishness in every key global pricing hub. Jun 1, 2020 · A wild ride in crude oil. 78 on September 6 (see chart below). What are contango and backwardation? Names for the curve structures mapping traders’ guesses about what a given contract will be worth in the future. Jun 21, 2021 · A contango would occur in crude oil during say a opec squeeze and there is an unnatural or natural need for spot oil. gi F3 CA Knowledge Check ? 2 With the spread of coronavirus, the crude oil curve went from backwardation to a super contango. Jul 24, 2014 · A contango market suggests ample supply in the prompt market, as the futures price of a commodity is above the expected future spot price. Oil curve has been trending towards backwardation. This study examines the factors underlying the historic oil price fluctuation during the Covid-19 pandemic. Which one shows he curve going from backwardation to a super con tango? How does the market determine a physical reference price for commodities? With the spread of coronavirus, the crude oil curve went from backwardation to a super contango. Daily Brent tumbled to […] May 21, 2020 · Oil prices have been trading in a pattern known as contango this year, where spot prices and near-term futures are worth less than futures expiring several months from now. It is often called 'normal backwardation' as the futures buyer is Sep 10, 2024 · Contango is a market condition where the futures price of an asset is higher than the spot price. Apr 17, 2020 · West Texas Intermediate crude prices for future delivery have risen well above the spot market—a situation known as contango—and that can encourage traders to store oil. ^ Chegg survey fielded between Sept. ^ These offers are provided at no cost to subscribers of Chegg Study and Chegg Study Pack. customers who used Chegg Study or Chegg Study Pack in Q2 2024 and Q3 2024. And I’m concerned, based on your question, I don’t think that just the oil markets are going to be tremendously affected. 8/Bbl, or 11%, higher than WTI one year from now. Apr 10, 2025 · Negative Oil Prices in 2020: The COVID-19 pandemic led to an unprecedented event where the futures contracts for wti crude oil fell into negative pricing. Oct 17, 2024 · Oil markets are in “backwardation” — we’ll explain Geopolitical conflict is interfering with crude oil futures, causing oil prices to be lower in the future than they are today. Backwardation generally indicates immediate demand or tight supply, while contango reflects oversupply and weaker demand expectations. TRUE backwardation is not considered the normal yield curve bloomberg WED 10:30 AM DOE crude oil inventory statistics are released on what day and time TRUE May 29, 2020 · An especially skewed spread for oil futures or "super-contango" emerged last month, prompting traders to seek quick bargains, store the oil and sell at a greater a profit later. Backwardation incentivizes selling off inventory because spot prices are higher. These two market conditions describe the relationship between spot prices and futures prices, and they can have a profound impact on the profitability of trading strategies and investment vehicles tied to commodity futures. This contributed to oil prices decreasing by nearly 70 percent since the beginning of the year. With the spread of coronavirus, the crude oil curve went from backwardation to a super contango 2 3 Click on the Bloomberg CCRV charts on the right. After presenting the definitions for reference, we look at how they can affect trading strategies. In this example, the price of crude oil for delivery in June 2020 was at $28. 27%. Feb 25, 2022 · This structural backwardation, aided by constant hedging, eventually disappeared. Backwardation best example is when spot expiring crude fell to -40 dollars on april 20,2020 during the pandemic ALL CAPS FOR A REASON--NO ONE WANTED OIL AND THE LONGS HAD TO PAY SOMEONE 40 BUCKS TO TAKE THEIR BARREL OF TOXIC OIL. Contango is a situation where the futures price of a commodity is higher than the expected future spot price (supply-driven). For example, crude oil futures markets often trade in contango—meaning prices are projected to increase the further one goes out on the time horizon. The first thing to understand is that crude oil futures, like most other commodities, are not priced as a single data point like a stock. From contango trading strategies to crude oil contango scenarios. Right now, oil futures are in an extreme condition of contango which implies that oil prices are oversold and bottoming. Feb 22, 2022 · The futures curve went into steep contango, with oil for future years remaining above $40 per barrel even as the spot price of oil was at or around $0 in that crisis moment. In 2020, the market swung to sharp contango during the Covid-19 pandemic as the market became vastly oversupplied. Not the question you’re looking for? Post any question and get expert help quickly. Backwardation means oil today is worth more than oil in the future. 58 on March 8 th, surpassing the prior high of October Apr 1, 2020 · With the coronavirus crisis and ongoing oil price war weighing on global crude demand, the infamous “super contango” has emerged for the first time since 2015 Sep 30, 2022 · Learn how traders can profit in oil markets with a contango forward term structure by storing oil, and understand how other traders may use spread trades. Jul 30, 2020 · Sluggish oil demand recovery with resurging coronavirus cases in many parts of the U. There are futures contracts for each month Backwardation and Contango must not be confused as one term since these are two different terms used to explain the shape and structure of the forward curve for commodities like wheat, gold, silver, or crude oil. Current examples include OPEC+ production cuts, geopolitical disruptions affecting Russian refineries, and limited strategic petroleum reserves. To see why backwardation and contango are important, look at the chart below, showing the spread between the current near month crude oil contract and the one that is 11 months out. Feb 16, 2022 · The two-year Covid crisis put many markets on a wild ride—just look at U. Apr 18, 2022 · “The term structure of all crude benchmarks moved to a super contango in March, as massive oil demand destruction, significant refinery cuts and rising global oil supply were expected to create a large surplus in the oil market,” according to a monthly report from the Organization of the Petroleum Exporting Countries released on Thursday. Apr 3, 2024 · Unravel the mysteries of contango and its role in futures trading. Nov 29, 2021 · The shipping and delivery cost of Shell BP crude oil for a futures contract expiring in six months with physical delivery is $23. Oil futures Example The following table below shows a snapshot of oil futures prices from August 2023. In the world of commodity trading, the terms "contango" and "backwardation" are of paramount importance. Our results show that there are three well-defined and distinct market regimes that govern potential changes in the level of crude oil inventories: contango, backwardation, and extreme backwardation. A backwardation in the oil price curve will bring in more passive investors and disincentivize producers to hedge. 7) which reached an all-time high of $21. Exhibit 3 highlights the six-month brent calendar spread (month 1 vs. Click on the Bloomberg CCRV charts on the right. Terms and Conditions apply. These are more popularly known as Contango and Backwardation in market parlance. Feb 25, 2025 · Price Curve Adjustments Market participants monitor how futures prices evolve over time, as shifts in the price curve signal changing supply and demand dynamics. As June West Texas Intermediate crude futures were about to expire on Tuesday, they actually traded higher than July futures, by as much as 90 cents per barrel. Rett Answer e to search W D HUAWEI F1 F2 1. Backwardation and Contango: What They Mean, Why Traders Care PLEASE LIKE AND SHARE THIS VIDEO SO WE CAN DO MORE! What Are Backwardation and Contango? http://www. Transcript: Contango vs Backwardation Welcome to Oil 101. The current dynamics of demand and production indicate the oversupply could persist for a while, a bad sign for oil investors. The futures market for Shell BP crude oil is currently in a state of backwardation. Nov 20, 2020 · Due to the contango structure in the oil market lately, USO underperformed crude oil prices. Contango caused storage capacity to fill to the brim and the price to go negative. oqk tiufiypm yhfr rnvpn qwap eragvv iicqo kwqs qbjkpxf jplxts

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