Credit Suisse thinks oil prices could fall as the market approaches ‘super contango’
SHANE FERRO
BusinessInsider.com
MAR. 5, 2015
Oil is in contango right now.
That means that the futures contract price is higher than the expected price. So for example, people are entering into futures contracts at say, $60 a barrel, but actually expect the future price to be lower at say, $50. This difference usually accounts for various real world things like the cost of storing that oil until the futures contract matures.
To put it another way, it costs money to sit on barrels of oil. Rather than paying to store that oil, a trader pays a premium to the expected future price, which effectively compensates the other party selling that contract for their storage costs.
In a note to clients on Thursday, Credit Suisse writes about the potential for the market hitting “super contango” as US inventories of oil in storage continue to fill up.
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