I have a question. I just checked the NYMEX website and shows that the June Crude Oil is trading at 117.20 (could be delayed) and the July '08 is at 116.38 and the Aug '08 is 115.55. They have listed the Dec '11 contract last trading at 106.50 How come the further you go out, the cheaper the cost of the futures contract? Wouldn't the cost of storage cost be more because you are holding it longer? I've never traded Oil or any commodities before. Just wondering. Thanks.
Storage is discouraged in this type of environment. Liquidation is encouraged. The market is "demanding" supply NOW, not later. It's better to receive $118 per barrel now than to receive $117 per barrel one month later.
Right now, this is the price which has gone up rapidly, so the near contract is reflecting the current price. And, there might be the expectation that the current price might not hold. That is a reason why near month would be more expensive.
So, if one were to predict that there would be the same amount demand at that time or maybe more, then would you consider going long that contract now?
1) No. Prices and spreads can move independently of demand. 2) Since the market is in all-time high territory, I have a shortside-bias. The market ought to fall harder than it rallies. Holding positions over the weekend can give you insomnia. 3) A "final top" ought to be firmly in place right before Memorial Day weekend. We'll see.
Yes, I remember Nazzdack said just after it happened that the MFGlobal/Dooley spike would probably be the wheat long-term high , and Guess what?... It was. I wouldn't be surprised if he is right again on crude... Those guys that can "predict" the market are just scary...