Goldman expects the oil markets' backwardation
to strengthen further in second quarter 2018 as OECD stocks reach and remain at 5-year average levels.
On the one hand, the rapid rotation from contango into backwardation
in the Brent crude oil market has effectively helped increase Opec revenues.
n other major commodities, when supply has patently swamped demand - see Brent crude oil futures roughly between Q3 2014 and Q3 2017 - the forward curve reacted swiftly, moving from backwardation
The return to backwardation
in the Brent crude oil prompt spread - first futures month trading higher than the next - has helped push Brent's premium over WTI back up to levels last seen in December 2015.
JBC Energy said in a note on April 25 that a return of $60 for a barrel of Brent "does not look unreasonable," and it could coincide with a return of backwardation
in the market.
Although in the near term, all oil markets remain in contango, even after the OPEC and non-OPEC decision, the first signs of backwardation
were visible in the futures curve, as summer 2017 contracts are trading above 2018 strip average.
-- When the future price is less than the spot price
In fact, Brent front month timespreads have already strengthened in the last three months and could briefly flip into backwardation
In short, we will get up close and personal with contango and backwardation
, and evaluate the effect each has on this type of security.
The paper examines the impact of oil price volatility, the behavior of the Organization of Petroleum Exporting Countries (OPEC), and the volatility of the US Dollar exchange rate on the backwardation
of crude oil futures during 1995 and 2006.
The premium for prompt cargoes, a market structure known as backwardation
, influences the level at which Middle East exporters including Saudi Arabian Oil Co set official monthly prices for buyers in Asia, according to industry consultants KBC Energy Economics and JBC Energy.
For each commodity, the index rolls into the futures contract that shows the most backwardation
or least contango, selecting from those contracts with nine months or fewer until expiration.