Oil dives deep into contango as price war begins

LONDON (Reuters) - Brent and U.S. crude contracts were deep into contango on Monday, hitting a four year low, as oil prices lost as much as a third of their value after Saudi Arabia signalled it would hike output to win market share.

The six-month Brent contango spread from May to November widened to as low as $3.70 barrel, a level not seen since late 2016.

(Graphic: Brent futures 6-month spread - https://fingfx.thomsonreuters.com/gfx/editorcharts/OIL-PRICES-CONTANGO/0H001R8F8C7E/eikon.png)

Brent crude was in contango for as much as $0.88 a barrel earlier in the session between prices for May and June, the lowest level since Nov 2018. It recovered to $0.65 a barrel at 1210 GMT.

For U.S. West Texas Intermediate (WTI) crude the contango between May and June prices was $0.41 a barrel, after hitting a session low of $0.55 a barrel, the lowest since Dec 2018.

Contango is a situation where the futures price of a commodity is higher than the spot price. The structure of the market has significant implications. Besides encouraging storage of oil, contango also hurts financial investors who have to pay a premium every month they renew a futures contract.

(Reporting by Bozorgmehr Sharafedin, editing by Louise Heavens)

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