GRAPHIC: Oil contango: link.reuters.com/fes73w
By Jane Xie SINGAPORE, Jan 9 (Reuters) - For the first time since 2009, a contract to buy crude oil or any sort of refined product costs less if it’s for immediate delivery than for future shipment, giving traders more reason to buy now than later.
This phenomenon motivates traders to purchase oil now, store it in tanks and sell it for a profit when prompt demand recovers. But whether the contango - or when spot prices are at a discount to future prices - would help lift the market remains to be seen. Benchmark Brent crude <0#LCO:> prices have fallen over 50 percent since August.
The entire oil complex slipped into contango on Wednesday as a deluge of cargoes triggered by the rise of U.S. shale oil and refinery expansions earlier in the decade struggle to find takers due to slowing economic growth, especially in Asia and Europe. The prompt February Brent crude contract is at a discount of more than $17 a barrel to the February 2017 equivalent.
“For crude, there’s a structural change, going from fairly balanced to an oversupply,” said Richard Gorry, managing director of Vienna-headquartered energy consultancy JBC Energy. “For products...demand has not collapsed, (it‘s) just a tendency of oversupply of refining capacity and slower demand than had hoped for.”
The last time the entire oil complex fell into contango was in the final quarter of 2009 when markets were emerging from the height of the 2008-2009 financial crisis. (Editing by Henning Gloystein and Ryan Woo)