This week the term structure of ICE gas oil futures definitely turned from contango to backwardation. Tensions in North-Africa and the Mid-East and the Tsunami and resulting nuclear risks in Japan caused the market to turn.
As previously explained in our e-paper “Oil Futures Forward Curve Dynamics” a backwardation implies tight markets with low and/or decreasing inventory levels.
But when looking at ARA oil inventory data it seems as though gas oil stocks are relatively high. So does the economic theory fail the test? The answer is no! Our research tells you why.
PJK has written a research note in which the current situation is analyzed. Also various short and medium term scenarios and their implications for the persistence of the backwardation term structure regime are highlighted.