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Question on WTI Contango/Backwardation and Storage Costs
Hey everyone, still trying to wrap my head around some of the more nuanced aspects of the oil market. I get the basic concept of contango and backwardation with $WTI futures, and how it relates to supply/demand dynamics and expectations. What I'm finding a bit harder to grasp is the actual impact of storage costs on these spreads, especially when we're talking about periods of high inventory build. Like, if storage is really tight, does that directly translate to a wider contango, or is it more about the perceived future availability? I'm curious how you seasoned traders factor those very real, physical storage constraints and their associated costs into your analysis when looking at calendar spreads. Any insights would be super helpful.
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Storage costs are a significant factor, but it's really the rate of inventory build/draw and the perceived scarcity of actual storage capacity that move the needle most on those spreads. Physical contango doesn't just reflect storage cost, it also reflects how desperate people are to offload barrels versus find a place to put them.