“In late 2014 and again in late 2015, traders and refiners raced to buy as much crude as possible and put it into storage to profit from a big contango structure in the futures market.
But the strategy depends on the contango remaining wide enough to cover all the costs of financing and storing the physical crude.
As the contango in Brent narrows sharply, strategies which depend on selling Brent futures are becoming unprofitable (Hedge funds bet on tightening oil market despite Doha debacle, Reuters, April 19).
To the extent traders and refiners are financing and storing extra stock with Brent futures, the barrels are likely to be sold if the market remains in a narrow contango or moves deeper into backwardation.”