Contango Market and OPEC: Will They Impact Crude Oil Prices?



Contango market

A commodity like crude oil is said to be in “contango” when the spot price is lower than the futures price. December 2016 and January 2017 WTI (West Texas Intermediate) crude oil futures showed a spread of $0.6 per barrel as of November 15, 2016. The spread has been narrowing lately. It indicates stronger demand or slowing supply in the short term. For more on crude oil supply and demand, read OPEC Expects Crude Oil to Rise between 2017 and 2020.

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Hedge fund manager Pierre Andurand expects OPEC (Organization of the Petroleum Exporting Countries) to successfully implement its plan to cap production. He thinks that prices could hit $60 per barrel by the end of 2016 if OPEC succeeds. Nevertheless, he thinks that prices could still slowly trend higher to $70 per barrel by the end of 2017 even if OPEC fails.

Crude oil price forecast  

The EIA (U.S. Energy Information Administration) estimates that US WTI crude oil prices will average $46 per barrel in November 2016 and December 2016. It also estimates that the US and Brent crude oil prices will average $50 per barrel and $51 per barrel, respectively, in 2017.

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Impact on ETFs and stocks  

Volatility in crude oil prices can impact oil and gas producers’ earnings such as Marathon Oil (MRO), ConocoPhillips (COP), Cobalt International Energy (CIE), and QEP Resources (QEP).

The ups and downs in crude oil prices also impact funds such as the ProShares UltraShort Bloomberg Crude Oil (SCO), the Direxion Daily Energy Bull 3x Shares ETF (ERX), the iShares US Energy (IYE), the ProShares Ultra Bloomberg Crude Oil (UCO), the Fidelity MSCI Energy ETF (FENY), the VelocityShares 3x Inverse Crude Oil ETN (DWTI), and the PowerShares DWA Energy Momentum ETF (PXI).

For more on crude oil prices, read Saudi Arabia: Weather Will Be a Key Demand Driver of Oil in 2H16 and Winners and Losers in Energy after the US Election Results. For more on crude oil price forecasts, read Will Crude Oil Prices Test 3 Digits Again? and Major Banks Downgrade Crude Oil Prices despite OPEC’s Deal.

For related analysis, visit Market Realist’s Energy and Power page.


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