Queueing Theory, Backwardation, Contango and the Oil Market

If Queueing Theory applies fully to the oil market, prices are effectively impossible to predict in the long term, guaranteeing losses to all airline companies. - TheOilDrum

What do these terms mean:

Queueing Theory

Wiki: Queueing theory is generally considered a branch of operations research because the results are often used when making business decisions about the resources [think energy] needed to provide service [think airlines or the auto-industry].

It is applicable in a wide variety of situations that may be encountered in business, commerce, industry, healthcare,[2] public service and engineering. Applications are frequently encountered in customer service situations as well as transport and telecommunication (note that something called ride theory is sometimes mentioned, but it is uncertain whether it is a valid theory or a hoax).

Note: Queueing theory is directly applicable to intelligent transportation systems, call centers, PABXs, networks, telecommunications, server queueing, mainframe computer queueing of telecommunications terminals, advanced telecommunications systems, and traffic flow.

Backwardation

Wiki: A backwardation starts when the difference between the future price and the cash price is less than the cost of carry, or when there can be no delivery arbitrage because the asset is not currently available for purchase.

NVDL: We may see backwardation in terms of the oil market (if we aren't already)

Contango

Wiki: Contango - where the price of a commodity for future delivery is higher than the spot price, or a far future delivery price higher than a nearer future delivery.

NVDL: Contango is the opposite of backwardation.

clipped from www.theoildrum.com The impossibility of predicting long/mid term oil prices is a serious problem for governments and businesses planing ahead. But this is all part of the game: the destructive process of dependence on scarce resources. If a steady increase in prices was the outcome (as some believed), business would be able to plan ahead, for instance hedging on the futures market. Instead, these unpredictable price swings are very disruptive. Taking the example of an airline company, if it plans for a high oil price and prices go down, it will likely loose competitiveness. On the other hand, if it plans for a low price and it happens to go higher, the company will lose profits and eventually have financial difficulties. If Queueing Theory applies fully to the oil market, prices are effectively impossible to predict in the long term, guaranteeing losses to all airline companies.