The term-structure of the forward curve of WTI futures contracts also reached unprecedented levels as inventory concerns grew. In normal times, investors can expect a premium for owning future deliveries of commodities because of scarcity and supply uncertainty, especially for hard-to-store commodities such as oil. This premium is observed by a negatively sloped term-structure of forward prices, a phenomenon known as backwardation. Meanwhile, when a commodity is in excess supply, the forward curve is positively sloped, i.e. in contango. When the curve is in contango, the premium for owning future deliveries is negative as forward prices are expected to fall toward spot prices.
Comparing the price differential between the first- and twelfth-month contracts, the forward curve mirrors the severe supply-demand imbalance with the steepest curve ever witnessed (Chart 3).