About Friday’s WTI price surge… | FT Alphaville

About Friday’s WTI price surge…

Late last Friday afternoon, WTI crude futures experienced one of their sharpest price increases since the Libya crisis of last year:

Brent crude followed with full steam ahead:

Brent futures ended up settling 7 per cent higher at $97.80 per barrel, while Nymex WTI rallied by more than 9 per cent, to close at $84.96 per barrel.

But here’s the thing —  there was no equivalent spike in volume. Usually blow-out moves of this sort would be associated with a volume spike. There was also no shift in the time structure. That is to say, the whole curve moved in tandem.

As Olivier Jakob at Petromatrix notes on Monday:

Crude oil prices on Friday had their largest surge since the kick-off of the Libyan crisis. However at the start of the Libyan crisis the surge in crude oil prices was accompanied by a surge in volume and a surge in the timespreads. Instead, on Friday the price surge came through volume that was just average and timespreads that were about unchanged. Therefore if the price surge of February 2011 could be linked to a supply and demand story, it is much more difficult to characterize the price surge of Friday and the fact that is happening on a P&L inventory day for the end of the quarter and of the first half of the year is not helping.

The price action of Friday does confirm that crude oil prices (especially WTI) are closer to their “value” area and therefore are making flat price shorts more nervous. While momentum traders might come back to crude oil on a technical basis, the fact that the spreads are not moving suggest that the surge of Friday might not have enough legs to be strongly sustained.

Which means the move may have been less about supply and demand, and more about portfolio squaring ahead of the second half.

Related link:
Hello Brent contango – FT Alphaville