The negative effects of contango in the oil futures market are diminishing and may even move toward backwardation. Maxwell argued that the degree of contango has been reduced ever since oil prices bottomed out in 2016. If the global supply is cut at a higher rate and oil inventories continue to see drawdowns, the market may move further into backwardation and bring the roll yield back into focus as a contributor to oil and energy returns.
While the Organization of Petroleum Exporting Countries have moved to cut production, expectations of continued U.S. shale production remain a deterring factor. Nevertheless, recent U.S. inventory drawdowns, which if sustained, could support the current price levels, Maxwell added.
Investors interested in gaining exposure to the crude oil market can take a look at the recently launched ETFS Bloomberg Energy Commodity Longer Dated Strategy K-1 Free ETF (NYSEArca: BEF). BEF tries to provide long-term capital appreciation designed to exceed the performance of the Bloomberg Energy Index 3 Month Forward Index, which tracks movements in the prices of rolling positions in a basket of energy commodity futures with a maturity between 4 and 6 months.
For more information on the crude oil market, visit our oil category.