CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

Crude oil price whipped around on OPEC+ production speculation

Crude oil prices responded sharply to supply conjecture; futures markets might provide hints for WTI direction and China’s economic outlook continues to battle disruptive restrictions.

Source: Bloomberg

Crude oil collapsed around US$ 5 to a 10-month low on Monday before rallying back to where it started the week.

The wild ride was triggered by a Wall Street Journal article that said OPEC+ is considering an increase in production of 500,000 barrels per day at their gathering next week. Saudi Arabia later denied the report, and this saw the price roar back toward opening levels.

Fractures started to appear in the oil market last Friday when the futures market dipped into contango for the first time since May 2021. Contango is an indication of underlying supply and demand dynamics within the oil market.

It occurs when the contract closest to settlement is cheaper than the contract that is settling after the first one. It highlights a lack of appetite by the market to pay more to have immediate delivery, indicating that participants are potentially prepared to wait.

Both episodes of contango saw the market move back into backwardation to end the session on Friday and Monday.

Contango is the opposite of backwardation, which occurs when the contract closest to settlement is more expensive than the contract that is settling after the first one. It highlights a willingness by the market to pay more to have immediate delivery, rather than having to wait.

Backwardation has been a feature of the oil market since early 2021 after the stimulus measures to deal with the pandemic started to kick in. This dunk into contango could be saying something about the broader global macroeconomic environment.

The swing in prices saw volatility tick up a notch but it remains relatively contained.

The backdrop for crude has also been hindered by a surge in Covid-19 cases in China that has raised fears of a return to harsh restrictions after 3 deaths in Beijing over the weekend. Chongqing, Guangzhou and Shijiazhuang, all significant Chinese cities, are facing increased lockdowns.

WTI crude oil, backwardation/contango, oil volatility

Source: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Start trading forex today

Trade the largest and most volatile financial market in the world.

  • Spreads start at just 0.6 points on EUR/USD
  • Analyse market movements with our essential selection of charts
  • Speculate from a range of platforms, including on mobile

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.