Professional commodity traders watch spreads (differences between the prices for adjacent futures contracts) rather than spot prices as the best indicator of the balance between supply and demand. In crude, the narrowing spreads for both Brent and West Texas Intermediate (WTI) indicate a closer balance between supply and demand in the second half of the year than in the first. Periods of excess supply are normally characterized in futures prices by a “contango” structure, an obscure term that originated in the 19th century. In contango, contracts for deferred delivery trade at a premium to the spot price to compensate the seller for the costs of financing, storing and insuring the product before delivery. By the middle of February, the futures market for crude was trading in a wide contango, reflecting the steady rise […]