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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,
Collateral crunch, commodity financing edition
Look at any financial market long enough and it starts to resemble the repo market.
Conventional sales and buybacks. Islamic finance. Covered bonds. Commodity contango or backwardation trades. Most of them have some form of sale and later buyback of assets,
“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.
[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.
Through the looking glass with US Treasuries and gold
We’ve been harping on for a while now about how a scarcity of quality collateral in the market (read US Treasuries) has been wreaking havoc in the repo markets — and how QE-related large scale asset purchases have only added to the problem.
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.
Swinging on an oil VaR
Oil price volatility is no doubt producing ample trading opportunities for many in the market, but as of Friday it has become much more expensive to take advantage of them.
The CME on Thursday announced it would be raising margins on trading crude oil by about 20 per cent for both speculators and hedgers,
Can you trust the Vix?
It’s official. Volatility is back in vogue.
On Wednesday the Vix index, which is derived from the value of S&P 500 options, posted its biggest two-day increase in nine months following a sharp fall in S&P 500 equities on renewed fears about the robustness of the global economic recovery.
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.
Why commodities may not be a good bet
According to SocGen’s Dylan Grice, seeking a decent long-term return on commodities is akin to selling coal to Newcastle: rather foolhardy.
For those in need of a history lesson, he has outlined the case of why in his opinion commodities aren’t really so swell.
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:
Commodity ETFs: even worse than you thought
The issue of rollover and contango decay in commodity exchange traded products has received a lot of attention in the media.
Bloomberg noted, for example, how many ETF investors were caught off guard when contango hit commodity markets this year — a situation which has eaten into the value of their investments due to the premium paid to maintain a futures position indefinitely.
Considering a commodity investor’s break-even rate
Olivier Jakob analyst at Petromatrix notes on Tuesday that open interest in overall crude oil futures on both the Nymex and ICE exchanges reached an all-time high of more than 3m contracts last Friday:
Brent’s got its problems too
We’ve documented the problems associated with the Nymex WTI crude contract regarding the onset of contango and Cushing syndrome in the US .
But as the CME Group — owner of the Nymex — has pointed out to us (in defence),
When Cushing syndrome strikes…
The WTI super-contango is back, which incidentally also implies the inevitable return of so-called ‘Cushing syndrome’ - a term nicely coined by JBC Energy, as it happens.
On Thursday, US inventory data showed that Cushing stocks — the delivery point for WTI futures – fell last week by 330,495 barrels to 37.6m,
The return of the WTI super contango
The WTI super contango is back — which means time to prepare for price distortions, offshore tanker storage buildup and the general return of evil hoarding oil spivs.
Mwa ha ha.
Okay, to be less sensationalist about it,
A Vix curve ball
Things, it seems, are still looking a bit funny in the world of VIX futures.
Pragmatic Capitalism, for example, wondered on Thursday why it was that volatility futures were refusing to revert to the mean.
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.