Long dated oil contracts surge to almost $100 per barrel

Posted Nov 9th 2009 2:40PM by Connie Madon
Filed under: International Markets, Industry, Options, Commodities, Oil

Sometimes you can get an indication of market trend by looking at the prices of futures contracts in the forward months. Oil futures contracts trade out as far a 2017. Oil futures contracts for the year 2017 are trading a just a shade under $100 per barrel, while spot crude was trading at $77.65 per barrel (spot prices are cash prices.)

The International Energy Agency has said that last year's spike of oil prices to $147 per barrel was a contributing factor in tipping the world into recession. It damaged trade balances, reduced household income and dampened growth, putting pressure on inflation and interest rates.

Oil traders are split on the effects of the upward curve in distant contract prices. Some say it reflects supply worries going forward. Others say that we have an oversupply of oil and the higher forward prices are an incentive to store excess petroleum. The thinking here is that a buyer would be more inclined to buy and store oil if he/she sees future prices much higher than cash.

There is no hard and fast correlation between the wide spread that exists at present (about $20.00 per barrel) going out to 2017 and reliable predictions of future prices.

Do you believe that this is an indication of future inflation?

Tags: commodities, inthenews, oil futures contracts

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Reader Comments (Page 1 of 1)

11-09-2009 @ 7:09PM

william lindblad said...

No. Not inflation. It is simply an indication of optimism.

Most in the know think that we are well on the road to recovery (economic).

I hope that they are correct.

I wish that I could join them.