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Our Futures contract prices (CL) vs. Price of Crude Oil (OPEC-ODB) in 2017

This plot attempts to show prices of futures contracts for Crude Light Sweet Oil (CL) with maturation dates in each month of 2017 in relation to the price of oil (OPEC-ODB).

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8 responses

It seems they're not pricing the same thing.

Cpt Morgan, would you care to elaborate?

I would expect that as maturity dates approach, the future price approaches the underlying's price.

In the pictures that you've shown, it seems that some time in August 2017 and onwards this no longer happens. The only explanation that I have for this is that "Price of Crude Oil (OPEC-ODB)" is not actually the underlying of the CL futures contract.

I could also ask you to elaborate: why have you shown us these pictures? :-)

That explanation does make sense.

I'm fairly new to futures research and trading, so I posted this first attempt to see if I was on the right track. The research itself was being done to see if we could observe contango and/or backwardation in this particular market. Originally I thought that the period from August-December was simply in backwardation, but looking at it now it does seem to go on for too long in order to say that definitively. It MIGHT be interesting to see what would happen if we added futures prices from 2018 to the graph, but I don't think the data is in on those yet?

There's a difference between a futures curve being normal/inverted versus being in backwardation/contango. They're not the same thing. Read here about the difference between the two concepts.

In the picture you posted on the left-hand side you can see that the curve is normal. For example in January 2017 the closest contract (CLF17) is the cheapest, the CLG17, CLH17 and so on as you move to farther away months. Normal curve means that prices are higher at longer maturities and that is what we see in this data.

However, I'd say it must still be the case that in Jan 17 crude oil price should be close to CLF17, in Feb 17 it should be close to CLG17, etc. So why don't know why after Aug 17 this stops being true.

I'm not sure how to see contango/backwardation from the picture above. Hopefully someone else more knowledgeable will weight in.

Thanks for providing the link those resources. I'll let you know if I can figure out where the issue is. Like you said, I'm really not sure why we see that deviation at the end of August.

If you haven't figured it out yet, CL futures track West Texas Intermediate (WTI) crude oil, not OPEC basket price.

Peter, that is excellent feedback! Will adjust in future. Thanks.