Forget these numbers! WTI-Brent March -14.98 WTI-Brent April -12.21 Its like a steam train! Brents up +1.86 and WTI -0.12!! WTF!
WTI-Brent March -16.10 WTI-Brent April -13.15 http://ftalphaville.ft.com/blog/2011/01/19/463136/more-on-the-wti-brent-spread/ Might explain some of whats going on. Looks like Hetco is putting a squeeze on the futures short sellers! Will be a very interesting Brent (March) futures expiration on Friday......
Great article in Alphaville, pretty much sums it up. Energy in general has always been about the 'path of pain', with Nat Gas, Electricity, and lots of petroleum products where there are recurring circumstances where basis and carry costs are over-ridden in a big way. When you look at energy, in fact, it is a very unique bird that seems to go from one squeeze to the next.
Tomorrow (Friday) is shaping up to be a potentially crazy day in the oil markets, the ridiculous levels in the spreads, the Brent (March) expiration, and now the Egypt situation (with Mubarak not stepping down) all thrown into the mix.........
They had better make most of it because the good ol' days of cornering the markets and milking them for yield are numbered. You won't get sentenced for that like the Norwegian pump-and-dump (retail) traders were, because that would be too socialist I suppose, you simply won't be able to dictate prices by scooping up 1/3 of the market supply. And in case anyone treated this spread as a regulatory arb (http://www.marketwatch.com/story/cftc-proposes-stricter-commodity-limits-2011-01-13), be warned that position limits are coming soon on the Brent side too... ( http://www.bloomberg.com/news/2011-...in-commodities-markets-eu-s-barnier-says.html ) The U.S. won't let Barnier get his transactions tax, but in this case CFTC leads the way. And position limits should be much stricter than those 25% of the deliverable supply proposed by CFTC for the spot month - Hetco allegedly cornered Brent with only 30%.
It is a indeed a bet, that the Cushing monopoly ends (or preferably is ended by NYMEX) sooner than your capital bleeds dry in carry costs. Look at calendar spreads - next month contract is also a benchmark like Brent - and there we have the same relentless time decay: a point a day lost to Brent, half a point lost to the next month contract. Will someone please delist that distorted thing? I'm getting an uneasy suspicion that the pair may never converge, just like those leveraged ETFs will never return to their initial price. The mighty landlocked "US oil" suffers from the same illness that so crippled NG. So do bet against this carry trade, because they eventually end in a spectacular blowup, but be warned that it may come too late to recoup the lost option premium. See also: http://www.liveoilprices.co.uk/oil/...r-86-us-oil-inventories-distorting-price.html
Anyone still watching/trading this? Spread has been moving around a lot the last few days (obviously with all the recent activity in the ME) Daily ranges: (Low to High) Monday 21st Feb 2.70 Tuesday 22nd Feb 2.94 Wednesday 23rd Feb 2.88