Question for the guys who have been doing this for decades - have you ever seen such a wide spread between the front 2 crude oil contracts? And what is causing it?
[1:57 PM PDT] John Thorpe - Cannon Trading Immediate Glut of oil weighs heavily on Spot month prices the May/Dec spread has widened by 4 dollars the past two trading days suggests the anticipation of Demand by year end will be near pre pandemic levels, the front month drag is reflecting the lack of demand and over supply combined. the back months again reflect the anticipation of a "back to normal" supply demand picture with the recent OPEC agreed upon production cuts of 9.79 MBD for the next two months and 8mbd reduction the remainder of the year.
Go back to 2009 and you'll see the same "super contango". Reason for such a wide spread is traders expect lower prices for the spot month. Also there's no storage left.
Storage costs have actually increased 100-150% in the last 6 weeks. https://www.bicmagazine.com/industr...rage-fills-to-the-brim-despite-leap-in-costs/
They're saying US oil storage could be full by mid-May (or sooner). Likewise elsewhere I imagine. From the Weekly EIA Report: Release date: April 8, 2020 EIA forecasts record high global inventory builds The 2019 novel coronavirus disease (COVID-19) pandemic has caused significant changes in energy fuel supply and demand patterns globally. Crude oil prices have fallen significantly since the beginning of 2020, largely driven by the economic contraction caused by COVID-19 and a rapid increase in crude oil supply following the suspension of previously agreed upon production cuts among the Organization of the Petroleum Exporting Countries (OPEC) and partner countries. As a result of low demand caused by COVID-19 and high levels of global crude oil production, the U.S. Energy Information Administration (EIA), in its April Short-Term Energy Outlook (STEO), forecasts large inventory builds in 2020 followed by inventory draws in 2021 (Figure 1). If realized, EIA's forecast global inventory builds of 3.9 million barrels per day (b/d) in 2020 will more than double the previous record of 1.8 million b/d set in 1998.
May ‘20: $20.66 Sept ‘20: $34.81 I personally can’t recall such vicious Contango. I’ve got clients that have just printed $$$ last couple months. It was a strong, trendy move with very little retracement. No demand, expensive and quite limited storage.