Oil contango may linger, inflate stockpiles

NEW YORK/LONDON (Reuters) – A big premium for long-dated U.S. crude futures may linger until the economy recovers, causing oil stockpiles to swell further by making it more profitable for traders to buy oil for storage.

Oil prices for prompt delivery have risen nearly 40 percent since mid-February to around $50 a barrel, but remain more than $25 cheaper than contracts for delivery five years down the road, a market structure called “contango”.

The contango has already encouraged dealers to raise U.S. oil stocks to their highest levels since 1993 and to lease dozens of supertankers to store oil at sea.

And the far end of the futures’ curve is likely to remain elevated by optimism that oil demand will rebound when the global economy recovers.

Reuters