Backwardation with Crude Futures

My April Crude Mini Future QM currently trades at 109.625 it expires on 3/18. The May Crude Mini Future QM currently trades at 108.45 it expires on 4/21. This feels bearish to me with the Mays trading lower than the Aprils. But come on oil bulls, explain to me how backwardation with the crude futures is bullish.... Link to futures see "CL"

http://www2.barchart...ection=energies

I am neither a bear or bull but nearby going to premium usually indicates an extremely bullish setup. Backwardation is rare in physical commodities and it always means extreme tightness or dilsocation of supplies. It has many consequences for the supplier, storer and user of the commodity and for the futures player. Only desperate buyers pay more for spot futures contract then further out. In a normal market (contagno) one can buy physical futures and put it in storage and hedge it in the futures market, carrying it risk free because the futures price represents cost of commodity +storage fee + cost of money tied up + cost of insurance + inspection fees. This happens to surpluses, they are carried at a cost to the future consumer. (the same prevails for index futures) This is what is refereed to as the carrying charge or carry. They are entire industries whose existence depends on being able to buy or sell in a known and orderly structure. So, when one pays higher for spot they only buy for immediate needs because they can no longer hedge it, besides, for future dates it is cheaper. Who would be stupid to lock in a transaction at a loss? Licensed warehouses in metals, elevators in grains and tankers or tank farms in oil can no longer participate in the process because of the upside down price structure. If a futures short holds to expiration they are playing with fire because they will have to secure commodity for delivery which cost more then the futures. I have a feeling we have an other gigabillion loss looming for some prominent hedge funds or banks.

Edited by flyers&divers, 14 March 2008 - 06:47 AM.

My April Crude Mini Future QM currently trades at 109.625 it expires on 3/18. The May Crude Mini Future QM currently trades at 108.45 it expires on 4/21. This feels bearish to me with the Mays trading lower than the Aprils. But come on oil bulls, explain to me how backwardation with the crude futures is bullish.... Link to futures see "CL"

http://www2.barchart...ection=energies

Of greater interest in a bit further down. NG futures more expensive each month next few months. CHK and others on fire here andd XNG just brokeout on P&F yesterday....very bullish.