FT: Oil’s volatility energises physical traders

Discussion in 'Commodity Futures' started by mizhael, Mar 4, 2011.

  1. http://www.ft.com/cms/s/0/5b6feb7a-463d-11e0-aebf-00144feab49a.html#axzz1FdjeDBkv

    Why would physical traders love volatility?

    Anybody please shed some lights on the following:

    "Take the price premium of high quality, low sulphur light, sweet oil from West Africa over Brent, which has surged to levels unseen in two years. Or the premium of jet fuel over diesel in Europe, also at the highest in two years, as the market counts the losses in supply from an export refinery in Libya which produced quite a lot of jet fuel. Or the premium for spot oil versus tankers due for delivery later in the year."
  2. If that's the case, then July 2008 - Dec 2008 should also be a fantastic year for oil traders due to the high vol...
  3. heech


    Because they're arb'ing mispricings between related instruments. If WTI shoots up $3 in 2 hrs, what's the right price level for a different crude flavor? What refined products? I sure as heck dont have a clue.

    Physical traders should be aware of the underlying relationships that tie these products together.... Costs me $x to ship this product there instead, $y to store it, $z to refine it.
  4. JPope


    Why even post the link if you have to be registered to read it?
  5. bone

    bone ET Sponsor

    Because if you can make or take good delivery for size, you are in the ultimate position of power to exploit the volatility.

    The most fun I ever had trading was for a big commercial utility during very cold winters and very hot summers in the 1990's. The biggest month I ever had was triggered by the Mississippi River during flood stage.
  6. Anyone care to comment:


    My only comment in reading this (I don't trade oil) is that is it possible that this recent alteration in the relationship of WTI to Brent could be from a blowup in large traders hedges?