Oil Futures and Prices

Question

I am looking at the following chain of oil futures:
https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html

Based upon what I am seeing, the market thinks that the crude oil prices are going to fall. That does not seem right to me. Is there something I am missing?

Bob

Answer 1

It looks like you are seeing the price for December lower than November?

This is backwardation, ref. Wikipedia

Normal backwardation, also sometimes called backwardation, is the market condition wherein the price of a commodities' forward or futures contract is trading below the expected spot price at contract maturity.

Also, from Investopedia

Normal backwardation is when the futures price is below the expected future spot price. This is desirable for speculators who are net long in their positions: they want the futures price to increase. So, normal backwardation is when the futures prices are increasing.

Answer 2

Is there something I am missing?

With oil or in general anything; predicting the future is complex; although there are algorithms and experts and theories; they are often not accurate. Else everyone would have become millionaire.

If the market sees the prices of Oil to reduce; it could be due to various reasons that the market believes in. Note I say believes in, does not mean it is correct. Only time will tell if it was right or wrong.

Some of the reasons could be; speculating / simplified / opinion

• Curbs in Iran will get lifted. That is one of the reason for higher oil price. Unrest in Venezuela can go away to stable political environment.
• Fracting can result in larger oils. There could be forecasts of some oil reservoirs being found. Takes few years or a decade to develop and can add.
• Alternative technology in Batteries can reduce the dependency on Oil for automobile.
• Various alternatives in Solar / Wind can reduce other needs for Oil
• Other such reasons.