As OPEC Compliance Peaks, Can The Drawdowns Continue?

26 Sep 2017   OPEC

Since it agreed to production cuts, OPEC stated that its mission is to see the oil futures curve flip from contango to backwardation as part of its work to erase the global oil glut. Since summer began, the contango is disappearing, and now Brent and Oman futures are in a state of backwardation for the rest of 2017 and for 2018, but OPEC’s work is far from over. Contango, a market situation in which the spot prices are lower than future prices, encourages traders to store crude oil and profit from selling it at prices higher than the spot market. Crude oil stores are precisely what OPEC is trying to do away with. Backwardation, contango’s opposite, was one of OPEC’s key goals with the output cuts—discouraging the storage of crude oil and driving oversupply down. It looks like OPEC has accomplished one of its goals: flipping from contango to […]

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