Investing

Disclaimer: this is not an investment site, but I often use "investment" sources. I have found that to better understand almost any subject, one must follow the money. That is most true when it comes to oil. Do not use this blog as a source of investment advice. 

Backwardation.

Contango.

This is very, very interesting. Investing in "oil" is nothing like investing in equities. If one is long when investing in equities, one hopes to buy low now and sell high in the future.

In oil trading, backwardation suggests oil prices are higher now than they will be in the future; it is just the opposite in contango. And yet, mom-and-pop retail investors tend to get more exciting about investing in oil when prices are historically high, even if that suggests a "backwardation" situation -- if one invests in oil when in backwardation, one is buying high, expecting to sell low. The time to invest in oil, when one is long, is when "we" are in a contango situation.

One could argue, that based on the data available, is that folks who are piling into oil companies now are expecting oil prices to remain in this range or trend higher, when, in fact, the data suggests oil will be less expensive in the future. Again, "we" are in a "backwardation" phase of the oil pricing cycle according to the data, and according to analysts and "experts."