as just a small trader - I enjoyed this thread. i have little knowledge of oil fundamentals... but I wish to take a shot. Is it possible the bankers know the Fed will be tapering QE... and therefore pricing in a higher interest rate-carry cost / strengthening dollar scenario?
I am sure they know it all. Look just what they did with eurchf a few months ago: SNB floated a rumor of moving the floor to 1.25 and then sold off the pair on the rally. That way they managed to actually reduce their fx reserves and even made a small profit since they were buying @1.20 and selling at ~@1.23. So one thing is 100%, never underestimate insider info a bankster has. I'd say they're pretty much risk averse and the small traders (like I would say a majority here) are the only actually speculating (i.e. gambling). Btw higher interest rates, inmo, are indeed being priced in. The taper already started anyway, the ball is rolling However inmo this doesn't explain the level of backwardation since historically there were actually periods of high intrest rates and a strong contango. This has to do with the convenience yield or simply the producers being too desperate to (for some reason) hedge before the new year, the backwardation should revert as March becomes the front month and seasonality kicks in. If there are no major production outages, there should be a glut forming in early spring that should bring spot prices sharply down, leaving the summer months priced more in relative terms. OPEC already said they will be maintaining production the same in Q1 2014.
The front end seems to have steepened over the last 2 days, I'm assuming this is a reaction to the start of the pipeline yesterday? People are expecting larger than usual draw downs in Cushing which is pushing up the front end of the curve?
Glad to see that someone else is also looking at this thing lol Now we don't have Syria, Libia and stuff to "explain" this indeed strange behavior so clever journalists came up with the excuse of pipeline...Forgetting on the way that just a few months back they've been using exactly same excuse to justify declining prices with the mantra "new pipeline will just shift the glut from Cushing elsewhere". Frankly, I'd rather stay with that interpretation, i.e. that there will be no exceptionally large draw downs UNLESS someone is playing with the stats as usual I never worked in a refinery, but I'm sure that it's not like ok today we read in WSJ that the economy is recovering so we up the production by 10%...and then by the afternoon like whops, sorry CNBC said it's actually still in depression so we better reduce it by 10%. I mean, if the economy is improving than we'll actually SEE this in a shift from backwardation to a more permanent contango like in 'old good times'. I mean, if everyone is expecting larger draw downs then why not buy the August crude which is now a bargain? Otherwise, it seems as a nice pump and dump to me, like a few weeks ago when it went up 2.5% on a day just because it felt like to And then crashed and burned
Besides also nobody dares to explain how come the shapes of WTI and Brent curves diverge so much? Judging by the difference in steepness now, it would indicate never ending expansion of wti/brent spread. How fun is that
Mann, it's not about wti exports, that's even illegal, but exports of refined products which keeps the two connected. There is certain dynamics and ranges in which the spread can move. Btw, you can see that WTI came down this morning while still back of the curve shifted even more down suggesting lack of confidence that anything fundamentally changed regarding Cushing glut and new pipeline. The back end should stay roughly flat on days when spot moves down, which would suggest increasing confidence in the economy and the fact that people are going to drive like crazy during the summer. If there is indeed a rising demand coming, it is still not visible in prices.
Bump! Geopolitics and shift to commodities are kind of shaking the picture now despite seasonal factors, however is this backwardation here to stay?