CL Spreads

Discussion in 'Commodity Futures' started by shep1487, May 21, 2010.

  1. "we have come off almost 20%, so careful where you short because some additional backwardation in the curve would be understandable"

    Excuse my ignorance - but when you mention backwardation in the curve, are you referring to a tightening of the n/q spread or backwardation between the two contracts.
     
    #11     May 25, 2010
  2. bone

    bone

    Backwardation and Contango refer to the general shape of the forward crude oil curve - please google or visit the Nymex site. The crude oil spread curve and the natural gas spread curves are their own little galaxies. There are entire trading groups and funds who specialize in the craft. Just ask Brian Hunter of Amaranth fame.
     
    #12     May 25, 2010
  3. rose

    rose

    bone - same question as james dean... do you mean that july/aug will tighten? because no part of the crude curve is in backwardation at the moment, take it you mean the move down means people taking profits/bounce/whatever giving extra support to the front month?
     
    #13     May 26, 2010
  4. bone

    bone

    Dean and Rose:

    As you guys know, the energy spreads have their own unique set of idiosyncracies 'and local knowledge' kind of nuances to them. I mean, the floor locals and OTC brokers even quote them different than the interest rate and ag brokers do.

    I am going to throw out a 'general tendancy' for many calendar spreads in 'normally' or 'traditionally' shaped curve environments (which we are not in): As a flat price front month market sells off, you will usually see some firming up of the front month calendar spread. True for the bond spread and true for the oil spread under typical 'backwardation' conditions which reflects the carry yield premiums.

    The interest rate yield curve is batty and the crude oil curve is batty, so I have seen that tendancy be much less common than it used to be whn oil traded between $30 and $50/bbl. for years on end. Look at the oil curves for the past three years after the market sold off from historically high levels.
     
    #14     May 26, 2010
  5. rose

    rose

    ok well i work in the field of crude markets so know about the conventions etc. i think your point is that after a sell of you see a relative firming of front month as people take profit...... (of either flat price, or the front spread)
     
    #15     May 26, 2010
  6. bone

    bone

    Right. Commercials short strips (producers) are scale traders, and you will see them buying some calendars to roll their short positions forward (deeper) as the market sells off. They don't necessarily wait for the third week of the month to roll. Not a rule, but a tendency.
     
    #16     May 26, 2010
  7. shep1487

    shep1487

    Easing into the short side again at -1.06...
     
    #17     May 27, 2010
  8. bone

    bone

    I would like to see the July-Augie come off some more before I took a short. Call me conservative to the max in terms of risk/reward skew - I am perfectly willing to trade some range in exchange for more confirmation. Remember that we saw -50 in April as the first downleg correction max level.
     
    #18     May 27, 2010
  9. looks like n/q doesn't like the -1.00 to -.90 area and keeps coming off...4000 lot order flashed on the offer today around the -1.28 area. We'll have to see where this goes, especially with what's going on with BP.
     
    #19     Jun 10, 2010
  10. shep1487

    shep1487

    Out of whole position at -1.51. approx. 40 cents per spread...Covering into today's weakness...
     
    #20     Jun 11, 2010