When gasoline prices rose mortgage owners who also had long commutes were faced with doubling gasoline bills, and at some point they couldn't afford it anymore. This lit-up the housing inferno, itself just waiting for some spark. This is illustrated by the fact that the mortgages on homes where "owners" had long commutes tended to blow up first, and long-commute regions have experienced the greatest drop in home prices. Not to mention that oil prices rises bled into agriculture and many other areas, pushing up prices independently of monetary inflation. In these senses and more we can say that high oil prices triggered the current recession. For the record I also believe that global imbalances caused much of the credit and housing components of this trouble. And energy is separate but related. Back to the contango. Does anyone know of good studies concerned with any predictive power that deferred futures contracts may have? In the run-up from 2003 - 2008 the contango was indeed a good predictor much of the time. If I remember correctly (and may not) the crude market went into backwardation as oil reached its blow-off top at $147. So the deferreds were actually helpful it seems in gauging the market -- that time... And now? I sure hope we find a way to either get more oil out of the ground economically or else to switch to electricity.
http://ftalphaville.ft.com/blog/2009/08/11/66386/betting-on-brent/ There's also a new presentation about WTI's relevance as a contract on cmegroup.com -- of course they have a natural bias...
Extremely weak demand. Crude price is only fueled by speculation from Fed printed money. Prices are way above their fundamentals. A selloff? Nobody may know for sure. They are still pumping dollars like mad.