Hi all, I'm new to futures, and have been watching CL for a couple of months. I've been reading about this "super contango" market we seem to be in right now, and the various strategies people use to profit from it. One thing I haven't been able to find the answer for is, however, why? Or what caused the market to form this contango? And what is keeping the contango on going? Thanks for any pointers. --joe
Beyond Cushing, oil stockpiles are also on the rise across the nation. Oil producers, refiners and investors have put a record amount of crude oil into storage at a key delivery point as they try to profit from an unusual form of "super contango" that may indicates the market expects prices to rise sharply by summer. When the price spread is greater than the storage cost, there is an opportunity to arbitrage at a profit almost without risk. Watch the RBOB gasoline market and you'll see that the demand is not that big. welcome to E.T pal.
The forward curve in crude is driven by near-term supply fundamentals. We are DROWNING in supply, and commercials are keeping their shorts and rolling them forward. Barges and tankers are being leased for storage. I would disagree that there is a market perception for a price spike in the near to mid-term time horizon that is shaping the curve. I would also take exception to the notion that there is a 'risk-free' or low-risk arbitrage premia. We have seen the contango move from (750) to (250), and for the past three rolls I have seen the front month calendar spread rally well over 300 tics on single trading days on four separate ocassions.
There are a lots and lots of "longs" who just haven't puked out of the deferred contracts yet......................not yet.
Read this for an interesting take on the issue... http://ftalphaville.ft.com/blog/2009/02/25/52879/a-self-propelled-pyramid/
Here's a blog post I ran into today: http://seekingalpha.com/article/124...sappearing-backwardation-and-uso-profits-next It didn't offer much explanation to support the idea, but it makes some sense at lease to this newb. What do you guys think? Is the contango going away?
what about with the advent of USO and an impractical way of taking delivery (like GLD "can") there is a large basket of money everyone knows about that is forced to roll each month of stupid public money. what better way to syphon off of it than to keep a steady contango going forward? you can skin a sheep once, but you can sheer it until it dies, and then you get to skin it.