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Forward Curve

The dynamic of crude oil market is complex and is influenced by many factors. Market participants analyze future markets to negotiate prices for future delivery of commodities. Future markets are analyzed with the help of forward curves and especially its structure. The shape of the forward curve reflects perceptions of market participants and their expected price trends. Futures with early expiry dates can either be expensive or cheaper than those expiring later. Such a relationship describes the two dynamic global market states: contango and backwardation. It is crucial to forecast the transition between these states as early as possible.

Contango and Backwardation

Investors and speculators are always concerned about whether commodity futures markets are normal backwardation markets or contango markets. These global market states affect market decisions and often serve as an indication of future price trends. A wrong prediction of the future market can put you into the situation of potential losses. Though the forward curve is not a method of determining this future market trend, it is important to know the shape of future curve to take right decisions.

Contango is market state where the future price is above the expected future spot price. Such condition implies that futures prices are falling over time as new information aligns them with the expected future spot price. In such instance, forward curve shows a rising trend. On the other hand, in case of normal backwardation, the futures price is less than the expected future spot price and forward curve shows a falling trend.

Generally, investor and traders desire indicators to be derived purely from prices to monitor market transitions. Hence, they look for indicators based on future prices which can be easily incorporated into trading programmes and other software. At PVM Data Services, we make market monitoring accurate and simpler for you. We collect the data, that help you to get a clear picture of the market and help you to make your market decisions. Our additional data feeds such as interest rates or forward curves for the OTC markets are utilized by our clients for advanced assessments. We collect the data from our 30 desks in London, Singapore and the US as well as from the exchanges. Our accurate and independent data preparation is trusted by producers, consumers and investors worldwide.