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Trend Change

For an extended period of time energy markets have had a declining forward curve in futures, although the trend showed seasonal fluctuation.

This is a condition called “backwardation.” It means that future prices are expected to be lower. It does not mean that potential buyers should wait, since the lower prices can be locked in at any time.

It is a mistake for consumers to focus on the current spot price of gasoline or oil. The forward curve is much more important.

The danger sign? This comes when the futures curve shifts from a declining pattern to one where prices show an increase in future months — Contango. This is happening now in Brent Crude, although we do not yet see it in other markets. Izabella Kaminska at FT Alphaville is all over this important story. Take a look at the chart of the forward curve in Brent.

For fuel consumers this deserves close attention.

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