Oil markets only exhibit the current combination of falling spot prices and a calendar spread in backwardation relatively infrequently, which suggests the contradiction between them will resolve itself rapidly. Falling spot prices imply the production-consumption balance is expected to become less tight – but backwardation implies the opposite, with a further drawdown in inventories from already low levels. The contradictory combination of falling prices and backwardation normally occurs when prices have passed a cyclical peak, whether a major multi-year cycle or a more temporary short-term one. But of the four possible states for spot prices (rising, falling) and calendar spreads (backwardation, contango), this is the least common, present on only 18% of trading days since the start of 1993. Other combinations of rising prices and contango (21%), […]