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How to play a long term bullish view on oil?
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How to play a long term bullish view on oil?

  #21 (permalink)
Market Wizard
Houston, TX
 
Futures Experience: Advanced
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Camdo View Post
I am trying to understand how to discern contango from backwardation. Looking at the chart line 6/20/14, the futures price is selling at 92.94 and spot price is 107.26. For the period between 6/20/14 and 1/15/16, why is this not backwardation, (far-dated futures are lower than the spot or near-term futures price)?

Your right the market was backwardated back in June 2014 when they market peaked, but is in contango now. It switched from backwardation to contango at the end of October 2014 when crude dropped below $80.

Take a look at some of the charts in this post.
https://futures.io/commodities-futures-trading/34295-cl-crude-oil-futures-contract-crude-analysis-thread-146.html#post549857

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  #22 (permalink)
Elite Member
Denver, CO
 
Futures Experience: Beginner
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SMCJB,

While you are correct about the crude light oil market currently being in Contango, the last contract roll for Brent was actually in Backwardation, at least it was when I rolled my contracts from Feb to March on Jan 13, 2016.

For the other posters,

Fattails has a very good explanation of this topic for those who are interested and want to learn more - one can search for his posts.

As an alternative to trading CL - Currently, I am using CL prices as a trigger to enter my trades, but I am actually trading Brent due to the cost of the Contango on CL - as it penalizes those who are holding long positions. Not only does Brent have much closer prices (using recent historical prices that is) for rolling to forward contracts than CL, during this last rollover period, the Backwardation actually allows you to get a lower price when rolling existing contracts forward - rather than pay the $1.20 or so for CL. Just a thought...

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  #23 (permalink)
Market Wizard
Houston, TX
 
Futures Experience: Advanced
Platform: XTrader
Broker/Data: Advantage Futures
Favorite Futures: Energy
 
Posts: 2,122 since Dec 2013
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kayaktri View Post
While you are correct about the crude light oil market currently being in Contango, the last contract roll for Brent was actually in Backwardation, at least it was when I rolled my contracts from Feb to March on Jan 13, 2016.

Your timing was perfect. Market was in contango except for the last two days of the Feb contract (Jan 13 & 14). March is currently 78c discount to April.

kayaktri View Post
As an alternative to trading CL - Currently, I am using CL prices as a trigger to enter my trades, but I am actually trading Brent due to the cost of the Contango on CL - as it penalizes those who are holding long positions. Not only does Brent have much closer prices (using recent historical prices that is) for rolling to forward contracts than CL, during this last rollover period, the Backwardation actually allows you to get a lower price when rolling existing contracts forward - rather than pay the $1.20 or so for CL. Just a thought...

Great points @kayaktri. Contango is less steep in Brent than in CL, hence the negative roll yield will be less.

March Brent & WTI are trading close to parity, which combined with the different contango's means that July Brent is trading at a almost $1.50 discount to July CL. If I was a crude buyer, July Brent @ 34 looks more attractive to me than March CL @ 31 - but I'm not a crude buyer I'm a spread trader.

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