The Contango Is An Oil Market Dance None Of Us Want To Have To Learn-But We Must
The Contango Is An Oil Market Dance None Of Us Want To Have To Learn-But We Must
by Mike Church
The market for crude oil, the industrial lifeblood of Texas and Louisiana, has tanked to its lowest future trading price ever of (–$43.35) a barrel. The fall is so sudden and catastrophic that analysts can’t even bring themselves to tell us what it may mean for the near future. From Market Watch…
Oil plunged into negative territory for the first time on record. The commodity’s latest round of sharp selling comes as uncertainty mounts around storage for excess oil. Demand for crude has plummeted since the coronavirus outbreak has frozen activity worldwide.
The price of West Texas Intermediate crude oil futures expiring in May plunged 321% to negative $40.32 cents a barrel, the lowest level ever recorded. Brent crude losses were muted by comparison, with the commodity sliding 9.5% to $25.41 a barrel at intrasession lows.
Oil Market is now in contango
The movements prompted WTI oil prices to enter contango, meaning that oil contracts for future delivery are more expensive than spot prices.
“The contango on WTI from now spot to the June contract can be described as a mega-contango,” Jeffrey Halley, a senior market analyst of Asia Pacific at Oanda, said. “As of Friday, spot was $18 a barrel with the June contracts around $25 a barrel.”
“The extreme contango tells us nobody in America wants the oil in the short-term,” Halley added.
Monday’s price action pushed the commodity further into contango.
I had never heard of Contango and now that I have I wonder why it was never the subject of a sci-fi, dystopian novel or movie? The damage from these massive, unimaginable economic disruptions cannot be completely know today but since our entire economy is based on consumption and movement, it is a safe bet that with oil in the toilet now through JULY’S futures, we are going to see some major corporations go under and they just might take Louisiana and Texas with them.
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