Contango Spread

Since the start of 2015, crashing crude prices have opened up a new opportunity for traders to profit while producers bite their nails. In today’s oversupplied market, prices for prompt delivery are lower than they are for further out months – a market condition known as contango. That’s when traders put on contango spread trades that involve buying and storing crude to sell at a higher price later. Rapidly rising crude inventories at Cushing (up 3MMBbl last week according to the Energy Information Administration - EIA) suggest it’s a popular strategy. Today we explain how the trade works at the Cushing, OK trading hub.