The OPEC production agreement, which we called correctly, has already helped hoist the profitable oil stocks we held, but what about 2017? One way I’ve looked at oil and oil stocks is by looking at the crude curve – the differentials between monthly contract prices. And a recent big move in the curve makes 2017 look very positive indeed.
I’ve seen all kinds of futures curves in my 30+ years of trading oil, and many analysts believe that the crude curve is really predictive of the future –but more often than not, it is merely an outline of what traders and hedgers are thinking.
here’s a look at today’s curve:
(Click to enlarge)
These numbers represent an enormous change from the numbers we saw even two weeks ago, before the big OPEC deal in Vienna. Since 2014, we had been seeing a deep contango market, where oil prices in the future were a lot higher than where they were trading in the front (present) months. But what does a contango market mean?
Many like to look at contango markets as a signal of crude storage, and that has merit – but I like to look at the curve through the eyes of its participants: when the oil market is collapsing, as it has been since 2014, players in the futures markets know that the costs of oil recovery fall well above the trading price, and will buy future oil contracts banking on a recovery. This drives buying interest away from the present and into the future and creates…