Those anticipating a recovery in oil prices after the recent bludgeoning are likely to be disappointed. According to a senior analyst, prices are likely to sink further from the 12-year trough reached this week.
"It certainly isn't (the bottom for oil)," said John Kingston, President and Director of Global Market Insights at McGraw Hill Financial Global Market Insights.
Clues for the future direction of oil prices could be gleaned from futures contracts. While front-month March WTI and European Brent crude contracts are around $28 a barrel--the WTI contract had slumped to as low as $26.19 on Wednesday, the lowest level since May 2003--but the sharp decline in the prices of front-month benchmark contracts over the last 19 months has caused oil contracts to go into contango.
Contango refers to a market phenomenon in which the front-month or near-term futures contracts are trading less than or at a discount to longer-dated futures contracts. This indicates ample supply for the immediate future.