The Term Structure of Oil
Contango, backwardation, and the storage trade — what the futures curve says about the cycle
On April 20, 2020, the May NYMEX WTI futures contract — with one trading day until expiration — settled at -$37.63 per barrel. Lesson en1_l2 covered the proximate cause: Cushing storage was nearly full and traders without storage paid buyers to take physical delivery.
But that headline price hides the more revealing structural fact about that same trading day. The June 2020 NYMEX WTI contract, settling for delivery 30 days later, closed at $20.43 per barrel positive.
The December 2020 contract closed near $32. Three contracts on the same physical commodity (light sweet crude at Cushing), at the same trading instant, priced more than $50 apart along the futures curve. Two of them were positive, one was deeply negative, and the difference between them was a single number: how much physical storage capacity the holder of each contract had access to over the contract's remaining life.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 7 sections and ends with 6 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1The cash-and-carry storage trade — what contango actually pays for
- 2What the curve shape tells you about the cycle
- 3The cost-of-carry relationship
- 4Curve shapes and what they signal about the cycle
- 52014-2016 — the super-contango that put oil in floating storage
- 6Where to see this on the platform
- 7Summary