On Squawk Box this morning they mentioned that for the first time (I would assume in a while) that oil prices were in Contango and that this was a bearish signal… How is this a bearish signal? Shouldnt this be a bullish signal? Forward Price > Spot
Gartman touched on this in his letter this am, hope it helps: Professor Holbrook Working of the Stanford Food Institute many years ago regarding the grain futures market proved that markets in contango (that is, where the deferred futures are at a premium to the spot rate and to the nearer-by futures) tended to argue for lower prices as the underlying instrument “bids up” the price of storage. We argued further than Prof. Working proved that a market in backwardation (where the spot rate is at a premium to the nearest future, which is itself at a premium to the next future back, which is at a premium to the next and to the next and to the next) is a market that is strong and likely to rise. Backwardation, or a negative carrying cost, shows that demand is high and that the market wishes to price storage at a loss in order to draw inventories out into the market where they are needed.
Basically, if the benefits of holding the commodity are great enough to drive futures prices below spot, demand for the product is expected to rise. Holding onto the product and selling at the future higher spot will be more beneficial than entering into the futures contract today.