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’The curious case of ‘abnormal’ backwardation
John Kemp at Thomson Reuters is a big fan of commodity curves — backwardation, contango and all the principles that come with it.
As he often notes, one of the key theories affecting the area is the idea of a convenience yield,
Bye, bye WTI-Brent spread disconnect…
Whoa…. look at that move in the WTI-Brent spread. That’s at least $4 worth of tightening in less than 10 minutes:
And what has caused this dramatic turn of events?
No less than this surprise statement from pipeline operator Enbridge declaring a reversal of the all important Seaway pipeline,
“Something structural has changed in current fundamentals”
John Kemp at Reuters has penned a cracking column on the current peculiarities afflicting the crude markets.
As Kemp notes, ask anyone in the market — specifically the physical market — and they will tell you the market is tight.
Oh, the Iron-y
Over in the spot iron ore market… there’s a small case of crisis going on.
As Reuters reported on Thursday, prices have been falling consecutively on “slow Chinese demand” and hefty spot supplies.
I thought I saw a backwardation
It’s only been four days, yet the backwardation in WTI — which caught everyone by surprise on Monday — has already started to ease.
Of course, if it turns out to be this short-lived, the theory that the flip may have been caused by a short squeeze rather than fundamental tightness,
WTI squeeze theory gains ground
What flipped WTI so quickly and severely into backwardation?
Increasingly, a consensus is forming that it was nothing more than a short squeeze. We’ve mentioned this before, but here are some more thoughts from the analyst community on Wednesday.
WTI is no longer a burden to passive investors
It was quite a day on Monday for the WTI US oil benchmark. The structure of the futures curve finally flipped into a subtle backwardation, seeing the contract join Brent in a formation which sees front month futures trade more expensive to those further out.
[Explaining backwardation] The WTI-Brent anomaly
… continued.
How do you actually profit from a contango trade?
To understand the WTI-Brent deviations of the last year, understanding the formation of the industry’s contango trades is essential.
[Explaining backwardation] Are index funds the new swing producers?
FT Alphaville’s three-part series attempting to explain the current backwardation in the market…
…continued.
Index funds the new swing producers?
In many ways, Saudi Arabia’s position as the ultimate swing producer in the oil markets is key.
[Explaining backwardation] The curious case of super-backwardation
A heads up — This is a three-part series attempting to explain the current backwardation in the market. We will make three arguments: 1) That contango trades helped to create fake demand in 2009/2010 2) that index funds replaced Saudi Arabia as key swing players,
Just when it makes sense to sit in oil futures…
… many funds have stopped buying.
While at first that move might seem logical — they are obviously expressing a bearish view when it comes to future demand — it’s actually another example of how the mechanics of the market see funds damned if they do and damned if they don’t.
The Fed’s convenient WTI ‘Cushing’ factor
Since the Treasury yield curve is becoming less responsive to Fed intervention, we’ve outlined the case for why it might make sense for the Fed to start targeting the energy curve instead.
Obviously the Fed mandate remains an issue.
The Fed’s oil easing
This post is going to address two fundamental points:
1) Why it might make sense for the Fed (or a respective government agent) to intervene in commodities.
2) Whether the Fed has indirectly already intervened and does this explain the mysterious WTI-Brent disconnect?
While we appreciate the above might be considered controversial,
[FOW Amsterdam] When life gives you lemons trade agriculture commodities
By Theo Casey, a columnist at Futures & Options World, blogging on the back of FOW’s European Equity Options conference in Amsterdam.
The 2008/09 global interest rate dunk hit structured products hard.
Oh, my precious
Gold and sliver spot prices were on a tear on Thursday.
Spot gold rose 0.71 per cent to hit a record high of $1,446.40 per troy ounce:
But it was spot silver which lead advances, rising 1.87 per cent to $38.06 per ounce,
Conspiracies and a lack of contango in silver
It’s finally happened.
Last week silver on the Comex closed in a nearly-complete state of backwardation — that curious situation where the price for future delivery of the metal is lower than for immediate delivery.
The silver market’s conflicting signals
Talk to the precious metal bugs, and you’ll soon come across the story that there is a growing disconnect between what’s happening in the futures market and the physical market.
This, they say, is particularly the case for silver,
More on silver backwardation
We promised some comment on the silver backwardation story we did earlier, and now we have some.
The story continues with Friday’s LBMA silver forward rates (SIFO) settling in at negative as far out as 12 months for the second day in a row.
Silver backwardation is here
Something is definitely up with silver.
Earlier this week we reported that rumours of physical silver shortages were doing the rounds in Europe.
On Friday, something stranger has taken place.
The silver forward rate — known as SIFO and published daily by the London Bullion Market Association — did something very unusual over the course of Wednesday and Thursday.
A digitised history of contango, backwardation
The Google Books Ngram Viewer continues to amuse us at FT Alphaville.
Here, for example, is a particularly interesting ngram brought to our attention by reader Bagehot by-the-Bay.
After all, you wouldn’t necessarily expect this very cyclical pattern to appear when you chart the terms ‘contango’ and ‘backwardation’ through Google’s store of digitised literature:
Nobody ❤ gasoline
Could it be that nobody in the US wants gasoline anymore?
On Wednesday, John Kemp of Reuters observed how the combined stock of crude oil and refined products in commercial storage around the US had surged to 1.130bn barrels — the highest level since weekly records began in 1990.
Looking at the silver bid-ask spread
While all eyes have been focused on gold perhaps the market has overlooked some strange goings-on in the silver market.
We noted on Friday, for example, how the forward curve in gold flipped into backwardation at the same time as silver went into a steep contango.
Cash for chocolate
Oompa, Loompa, doom-pa-dee-da
If you’re not greedy, you will go far
You will live in happiness too
Like the Oompa Loompa doom-pa-dee-do.
That, by the way, is FT Alphaville’s ode to Anthony Ward (dubbed “Choc Finger”
Cocoa pops
The cocoa market could be about to pop, according to former commodity analyst John Kemp now columnist at Reuters.
On Thursday Kemp explained how 50,000 futures contracts, representing some 500,000 of tonnes of cocoa on the LIFFE exchange were still left open just five days before the July 2010 delivery date is due.
It’s the BIS
One reason the BIS gold-swap story has courted some controversy is because, on the face of it, the Bank of International Settlements — being the central bankers’ central bank– is not supposed to lend to commercial banks.
Gold backwardation fears revisited, uh oh!
It’s been a while since the gold bugs had a tasty scare-story to feed on.
But those frustrations can now be dispelled.
The Business Insider blog brings to our attention that net gold-lease rates are back on the rise,
Boiling oil into backwardation
As can be seen in the chart below from Stephen Schork of the Schork Report on Tuesday, the contango in the WTI Nymex crude market has weakened over the last few months quite substantially:
A weakening contango,