Oil contango market
Oil futures market is called to be in contango when the oil futures price is above the future oil
spot rate. Contango is the phenomenon that is caused by many different factor, one of which is
the expectation of supply interruptions.
During the Covid-19 pandemic the oil market has taken a hit as the demand for oil has fallen
worldwide. People stopped traveling for both leisure and business and stopped driving to work,
as work from home environment emerged. Therefore, the oil futures were down as well. And this
trend is likely to continue due to the permanent changes in the consumer demand.
At the same time, the supply of oil has fallen sharply due to the unique circumstances the
pandemic has caused. And even if one would want to store oil currently at the lower prices, it
would not be readily available for one to do so with this short supply. The supply of oil has fallen
during the pandemic due to the closures and lockdowns. And this shortage creates contango in
the oil futures market.
As a result, in the light of Covid-19 pandemic futures market has experienced the pressure on
both supply and demand side.