Question: On Monday 10, the spot price for Saudi light crude oil stands at $85.2 a barrel, while the August futures contract for Saudi light crude stands at $86.32 per barrel. Based upon this information answer the following questions. a. Determine what the basis is for Saudi light crude on March 10. b. Based upon this basis value, would you expect normal backwardation or contango to occur in the future market as the August oil future contract moves toward settlement? Briefly explains c. The following month (April 20) the spot price for Saudi light crude goes to $85.25 per barrel, while the August future contract price moves to $83.10 per barrel.
(1) Determine the basis value for Saudi light Crude on April 20.
(2) Has the basis for oil strengthened or weakened between March 10 and April 20? Briefly explain
(3) Based upon this new basis value for April 20, would you expect normal backwardation or contango to occur in the future market as the August futures contract moves toward settlement? Briefly explains