For those of you watching the ticker on your T.V. screens and noticing the spot price of crude oil dropping like a stone - don't worry too much. The price of oil is not likely to fall to zero anytime soon.
The price being displayed on your screen is in fact the futures price of what is known as the spot crude oil. Today, November 16, 2004 the spot month for crude oil is the December 2006 futures contract.
Trading of this contract ceases today, November 17:
| Delivery Month | Termination of Trading | Notice Day | Allocation of Deliveries | First Delivery Day | Last Delivery Day |
2006 | |||||
| January | Dec 20, 2005 | Dec 22, 2005 | Dec 21, 2005 | Jan 1 | Jan 31 |
| February | Jan 20 | Jan 24 | Jan 23 | Feb 1 | Feb 28 |
| March | Feb 21 | Feb 23 | Feb 22 | Mar 1 | Mar 31 |
| April | Mar 21 | Mar 23 | Mar 22 | Apr 1 | Apr 30 |
| May | Apr 20 | Apr 24 | Apr 21 | May 1 | May 31 |
| June | May 22 | May 24 | May 23 | Jun 1 | Jun 30 |
| July | Jun 20 | Jun 22 | Jun 21 | Jul 1 | Jul 31 |
| August | Jul 20 | Jul 24 | Jul 21 | Aug 1 | Aug 31 |
| September | Aug 22 | Aug 24 | Aug 23 | Sep 1 | Sep 30 |
| October | Sep 20 | Sep 22 | Sep 21 | Oct 1 | Oct 31 |
| November | Oct 20 | Oct 24 | Oct 23 | Nov 1 | Nov 30 |
| December | Nov 17 | Nov 21 | Nov 20 | Dec 1 | Dec 31 |
What this means is this; as of tomorrow's close of trade, the "spot" price of crude oil will in trading parlance - "roll" or become the January 2007 futures contract which is trading at a price roughly 2 dollars higher:
And with this roll being completed, here is a look at contract expiries for 2007:
2007 Termination of trade | |||||
| January | Dec 19, 2006 | Dec 21, 2006 | Dec 20, 2006 | Jan 1 | Jan 31 |
| February | Jan 22 | Jan 24 | Jan 23 | Feb 1 | Feb 28 |
| March | Feb 20 | Feb 22 | Feb 21 | Mar 1 | Mar 31 |
| April | Mar 20 | Apr 1 | Apr 30 | ||
| May | Apr 20 | May 1 | May 31 | ||
| June | May 22 | May 24 | May 23 | Jun 1 | Jun 30 |
| July | Jun 20 | Jul 1 | Jul 31 | ||
| August | Jul 20 | Aug 1 | Aug 31 | ||
| September | Aug 21 | Sep 1 | Sep 30 | ||
| October | Sep 20 | Oct 1 | Oct 31 | ||
| November | Oct 22 | Nov 1 | Nov 30 | ||
| December | Nov 16 | Nov 21 | Nov 20 | Dec 1 | Dec 31 |
While this is a somewhat simplified explanation of what is really occurring - you might want to think in these terms;
Given the prices in the session overview above - a two dollar drop in the price of "spot" crude oil [Dec. 06] today/tomorrow along with a corresponding [relative] two dollar drop in the next contract month [Jan. 07] will produce a different or "new" spot contract [Jan. 2007] commencing on Nov. 20th - with the same price per barrel as today, before prices fell a couple of bucks.
This type of price movement is not that unusual at contract expiration when the "futures curve" is said to be in steep contango [think of contango as meaning prices rise - upward, to the right on a graph - over time] eg. - contango in gold:
