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Wednesday, December 03, 2008
Asia Markets Higher In Early Trade; Nippon Oil In Focus
Chris Oliver
MarketWatch Pulse
HONG KONG -- Asian stocks were mostly higher on Thursday morning, with merger activity in the resource sector helping to boost commodity-related shares, and as investors assessed the impact of large interest-rate cuts Wednesday in New Zealand and Thailand. Shares of Nippon Oil and Nippon Mining Holdings jumped 10% and 12.9% after the firms said they were holding merger talks, a move that reportedly woudld create the world's eighth largest oil company. Shares of Sanyo Electric were down 12.4% after the Nikkei newspaper reported Panasonic Corp [s:jp:6752] had lifted its buyout offer per share by less than 10%. Light sweet crude oil for January fell as much as 14 cents to $46.65 a barrel in electronic trade. Among region indexes, Japan's Nikkei 225 climbs 0.2% at 8,036.12, the South Korean Kospi was up 0.8% to 1,030.64, Australia's S&P/ASX 200 added 0.5% to 3,552.10 and New Zealand's NZSX-50 up 0.6% at 2,719.71.
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FOX Translator
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No, it's not a dance craze. Contago is a condition of supply and demand, essentially a fancy word to say that prices for items, typically commodities, are cheaper now than they would be at some point down the line.
Anything that¿s sold in the futures market can be in a case of contango. Futures are exactly that: a contract to buy an item or asset at a price in the future. This is the case with oil, with traders buying and selling contracts to acquire a barrel of oil in months down the line. When a market is in contango, spot prices, or the price of a commodity if you were to buy it right now, are lower than forward prices.
Why is that important? Well, it usually tells you the supply of a given commodity is plentiful (since, according to Economics 101, a large supply usually leads to cheap prices).
Incidentally, if you think contango is a mouthful, its opposite condition is known by the equally tongue-tying term backwardation.
