Watch Out Bulls: Oil Spread Trading Signaling Market Weakness

(Bloomberg) -- Front-month West Texas Intermediate crude futures are on track to close at the largest discount to second-month futures in more than three weeks.

The spread had traded in backwardation up until Monday. A switch to contango, where upfront supplies sell for less than later-dated barrels, might be a warning sign for the bulls. WTI for June delivery slipped Tuesday after rallying above $71 a barrel this month.

“One thing that was foreshadowing this pullback was the fact that the front-month spread in WTI switched from backwardation to contango,” said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York. “That’s always a bearish development.”

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