Anybody have working knowledge of this market? Why are oil markets usually in backwardation (which I think they are)? This implies a net benefit to holding the commodity. Is it just a convenience yield in the event of short-term supply shock?
i won’t pretend to have knowledge of the oil markets. mostly cause i don’t. but i think crude is in contango right now…
It may be, but I am pretty sure it was in backwardation for quite awhile earlier. Does anybody know the normal condition? I am trying to relate this to storage costs, conv yields, lease rates and all that crap.
oil was in contango for the last period. contango usually shows an excess supply versus demand for short term. this makes the oil holders try to find storage
but the theory - if I remember correctly what I read, is that USUALLY if the markets are in contango, oil producers would reduce supply to rise spot prices. They know the demand is there at a higher price, but the supply kills that price.So they usually adjust it. Obviously is not working right now because not everybody wants to reduce supply as needed and demand is in the toilet.