Why is long term oil price dropping as near term rises?

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lorax2013

Today the May 2020 WTI contract rose from around $20 to around $25. Huge jump right?
Meanwhile the far future contracts fell. For example Dec 22 fell over $1 and similar for Dec 23. Those were the biggest drops in those contracts for over a week on the same day the near term prices had their biggest rise by far.

Any ideas/explanation as to why would be greatly appreciated.
 
lorax2013 said:
Today the May 2020 WTI contract rose from around $20 to around $25. Huge jump right?
Meanwhile the far future contracts fell. For example Dec 22 fell over $1 and similar for Dec 23. Those were the biggest drops in those contracts for over a week on the same day the near term prices had their biggest rise by far.

Any ideas/explanation as to why would be greatly appreciated.
More...

They all move relatively the same. Prices are based on last. (Click the 30m timeframe, and compare that to May20 chart. Similar movement. It's just thin, with huge spreads.)

https://www.cmegroup.com/apps/cmegr...ue=1&monthYear=Z2&year=2022&exchangeCode=XNYM
 
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BBEF78AB-779A-40DE-8F62-D4D371E2C2A6.png
See attached charts - in last 2 days (April 1 and 2) the May ‘20 contract began rising rapidly but the Dec ‘22 contract began dropping. Any ideas why?
 
My colleague John Thorpe, an ex floor trader provided us with the following:

Moving back to a more normal contango relationship, the price shock of several weeks ago impacted immediate , current supply. if you chart the spreads between front months and back months over time you will see that during supply gluts, the spread widens as the front month drops, supply gluts tend to be temporary, relatively speaking. the prospect of over supply over the long run will bring the back months (deferred's) down more slowly as the probability over time of the current situation "infecting" the price a year or two or three down the road of crude becomes negligible. so the back months will not have the same volatility profile as the front months. also, the margins for the deferred that the exchanges charge are less than the fronts for the same reason. I hope this helps.
 
To San Miguel, yes they are thinly traded with a large bid/ask gap.

To Cannon_Trading, very impressive you’re watching this and you’re a great brokerage. I understand the spreads between front and back months will tend to diminish as a supply glut works itself out, and that is happening as expected.

However what seems odd is that the far future contract (WTI and Brent) reversed and fell for two days just as near futures suddenly moved up sharply after being relatively flat for a week. I seem to remember the same thing happening briefly (in WTI at least) during 2009 when oil began recovering its strong drop but I may be misremembering.

So again to be clear, why would oil in 2022 and 2023 start dropping in price for two days as spot and near term prices began moving up sharply? I can’t think of any technical reason for this to happen so am wondering if it is just a day or two of random noise or if anyone has an idea/theory.
 
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contango,, $20 only stayed there for 3 days. so it is irrelevant. I don't think anyone is actually going to deliver oil at $20/barrel.
It's like natural gas future months is at least 50% of spot price.
Utility companies hedge their natural gas purchases so they pay 'future price'
Same with gasoline refineries, they pay 'future' prices

I really don't understand these 'future' prices the price is like 50% more than spot price for oil
 
Its because future prices have less volatility. The 'market' won't pay more. it's as simple as that.
Why is December contracts even $38 and this month contract is $20/month that is amost 90% more.?
$20 was a short term dip from very weak demand as a result of 30% drop in demand just this money. Oil buyers are cancelling deliveries that is why and no room to store it and storage is filling up and costing more to find oil tanks to fill up. It cost money to store it and no cash to pay for it or banks want more cash or margin.

It cost a lot money to store oil in oil tankers plus fees. and risk that oil price would stay the same. and you lose money in storage cost. etc In the short term like in the next 6 months oil can be same price like in the 1990s price oil is same for a year. The volatility you see in oil like 50% increase from $20 to $29 is not normal at all in a few days like this. it went up 50% in 3 days in oil.
Its proof that it's manipulated by the President who went to the media and manipulated by Saudi or Russians. This is legal short term market manipulation of the oil market by the market 'movers' like gov't or private entities who control the supply.

Fundamentally, the demand of oil is down 50% or more and supply of oil is up from oil sands and new oil discoveries. that is the reason oil fell from $140 to $20. There is lots of oil in the market and oil tankers are full now. Oil buyers are not buying either to stockpile, their oil tankers storage are full too.
 
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