More pain as WTI crude oil futures are poised to hit contango

New York

AFTER months of battering from tumbling crude prices, commodity index investors may soon have another reason to consider leaving the oil market: contango.

For the first time since January, the US West Texas Intermediate (WTI) crude oil futures market is poised to flip into contango, a structure in which prompt prices are below longer-dated contracts, typically signalling a weaker market. Outright oil prices have already tumbled about 25 per cent since summer.

In contango, passive investors in commodity indices end up selling cheaper prompt contracts and buying more costly next-month futures for a loss every time they have to roll their positions forward. Since December 2013, with the market in backwardation, these investors profited as front-month WTI tr…