Oil in Backwardation

[yogibearbull]

Oil prices have moved up so much that it is in backwardation. Oil bulls are in charge now. Oil is benefitting from hopes of post-pandemic economic recovery. Stimulus3 will also help. At some point, higher oil prices will act as drag/tax on businesses but that point is not now.

Backwardation is when near-term oil futures are more expensive than long-term futures. Futures-based oil funds [USO, BNO] benefit from this condition when they roll futures.

Oil producers will also benefit from higher oil prices [XLE, IYE].

www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude_quotes_globex.html

[uncleharley]

The backwardation situation that Barrons is reporting on is true, however they are neglecting to mention that domestic oil has entered a band of pretty strong resistance and is somewhat overbought at this time. My expectation is that oil retreats a bit from current levels before moving on up. stockcharts.com/h-sc/ui?s=$WTIC&p=W&b=3&g=0&id=p2918132753c&a=412434637&listNum=86

[yogibearbull]

Good point about crude oil entering the overbought territory just a week ago [seen in daily charts]. Futures do move first and that is seen in $WITC, USO, BNO. But energy stocks aren't overbought yet [XLE, IYE, XOP]. The cyclical bounce story is supported by oil for now, but if oil breaks down right away, there goes the cyclical bounce story out the window.

[uncleharley]

It looks like $WTIC chewed its way thru that resistance and has kept the cyclical story alive. Hopefully it will hang around this level for a while and work off that overbought situation. Then, hopefully, it should move up some more. A weaker USD could help it move.