COTW: WTI Backwardation a Promising Signal

Line chart regarding WTI backwardation

COTW: WTI Backwardation a Promising Signal

The chart below can be downloaded here.

 

WTI crude oil recently moved into backwardation after several years of contango. This dynamic may bode well for future price gains for two reasons. First, backwardation suggests more of a balance between supply and demand and second, it removes a key structural headwind to investing in crude oil futures (the negative roll yield of contango).

 

A definition of backwardation and an explanation of how it differs to contango can be found here.

 

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