Oil Prices
Posted: Fri Aug 23, 2013 1:18 pm
There is a short video at this link that explains why backwardation in the NYMEX crude oil market is actually bullish for prices in the short-term: http://us.rd.yahoo.com/finance/external ... &cm_ite=NA
An oil trader once explained it to me this way. Think of the higher front month contracts as the crest of a wave that keeps moving on to the next month's contract. Oil traders (who cannot take physical oil) close out their positions at a profit and can move the money into a future contract at a lower price, hopefully to ride it up again. This momentum keeps moving the futures contracts higher.
An oil trader once explained it to me this way. Think of the higher front month contracts as the crest of a wave that keeps moving on to the next month's contract. Oil traders (who cannot take physical oil) close out their positions at a profit and can move the money into a future contract at a lower price, hopefully to ride it up again. This momentum keeps moving the futures contracts higher.