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They All Rolled Over And One Fell Out

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:

 

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