Oil investments down amid falling front-month prices
Crude oil futures lost ground on the commodity index today, as investor enthusiasm over Italy’s new leadership cooled off. The commodity oil reversed its six week-long upward trend that saw its futures surge from a dismal $75 per barrel to the brink of the resistant $100 threshold. However, in falling, oil investments ensured that crude’s front-month December contract has finally fallen below the value of the next quarter’s projections.
This effectively ended the protracted period of strong backwardation on the commodity index. Backwardation is a phenomenon in which near-month contracts fetch more than the contracts placed further on the timeline. This typically signifies a short term shortfall of supplies of a particular commodity. Analysts and traders however do not expect the absence of backwardation to last too long, attributing the fall of December contract figures simply to the fact that it is due to expire at the end of the week, causing oil investments to fluctuate more aggressively than usual in anticipation of the deadline. The backwardation that took over commodity prices on the commodity market in late October has been the first such occurrence in more than three years.
Oil investments tumbled mostly due to concern over the credit crunch taking place in the euro zone at the moment. The latest global stockpile reports also indicate that crude oil inventories may not be shrinking at a fast enough pace to maintain the kind of demand that lets commodity futures flourish. Several economists have also speculated that the strong rallies crude oil futures have posted over the past six weeks were due for a correction.
In the U.S., crude oil prices for delivery in December lost 85 cents to settle at $98.14 per barrel in electronic trading on the New York Mercantile Exchange. Commodity prices in the nation have been on a prolonged winning streak lately, fuelled by trader confidence that the new governments in Italy and Greece would finally administer the reforms needed to keep the debt-addled countries afloat.