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’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.
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.
Welcome to ‘synthetic warehousing’
John Kemp, at Reuters, continues his sterling work on how contango in commodity markets is influencing trading strategies — and to what degree ‘cash-for-commodity’ strategies are now getting overly crowded.
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”
The gold contango trade, charts du jour
We theorised on the possibility of some investors playing the contango trade in gold — perhaps from the moment they realised that financing costs would become low enough to make the trade profitable.
And while we stress this is just a theory – here are some interesting charts from Bloomberg showing a big contraction in the spread between the first month contracts and the second month contracts,
A GLD contango strategy
According to the FT’s hedge fund correspondent, Sam Jones, the hugely successful Paulson & Co (he of subprime bet fame) currently denominates a third of its $33bn of assets under management in a share class bolstered by huge positions in the gold market.
Crude futures may be really cheap
According to Reuters columnist and commodities guru John Kemp, some investors may be overlooking inflation when analysing WTI oil futures and the contracts’ respective forward curve.Posts
Which is ironic,
The volcano’s impact on European jet fuel prices is ‘meh’
The volcanically-induced no-flight ban over Europe is having some follow-through on European jet fuel prices.
Barclays Capital estimated on Monday that the ash cloud could be responsible for cutting up to 1m barrels a day of demand in the short term.
Is the contango floating storage trade back?
The last couple of months has seen much talk in the oil markets about the unwinding of floating storage positions.
Goldman Sachs was among those who noted that crude was increasingly being moved out of tankers on account of the changing structure of the oil future curve — which had gone from a steep contango a year ago to a near flattening just one month ago.
In contango, supertankers trust
Tanker trouble was still brewing on Friday, as Frontline –the world’s biggest independent oil tanker shipping company– reported an 84 per cent fall in Q3 income with a loss of $6m.
Chief Executive Jens Martin Jensen,
UK housing snaps into contango
The Daily Mail moaning about the effects of contango in the oil markets last week got us thinking about how the same market dynamic might translate to UK house prices.
Could it be, as we cheekily suggested,
The Daily Mail discovers contango
We love talking about contango on FT Alphaville.
But no one, it turns out, can turn a nerdy market-structure story about the shape of the futures curve into an alarmist `evil speculator’ rant extraordinaire quite like the Daily Mail.
The perils of a flat WTI curve and a cold winter
Olivier Jakob at Petromatrix makes a good point on Friday regarding the recent flattening of the contango and fall in crude prices (our emphasis):
Crude oil prices have been dropping like a rock for the last two days but this will do nothing to improve physical demand for it as the product cracks have not improved and the contango not widened either.
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,
Crude over $71, or 20 Big Macs
Crude futures are racing higher on Wednesday. The ascent has much to do with a continuing slide in the dollar, unexpectedly large crude draws in the last week according to figures from the American Petroleum Institute on Tuesday night,
Energy fundamentals shifting
Retail gasoline prices may be going up, but overall refining margins are still in the doldrums.
And this time round it’s the weak distillate component that is really dragging down returns — quite the reverse of last year when gasoline was the predominant demand destruction casualty.
Contango smashing
The contango between the front-month April contract and the second-month May contract has been severely smashed over the last day.
Having averaged a difference of about $2 per barrel over the last couple of weeks,
WTI-Brent spread narrows
Wednesday saw another draw in crude stocks at the Nymex WTI delivery point at Cushing, Oklahoma. With that, many in the market are now expecting a continued flattening of the WTI futures curve away from its current super-contango state,
Bye bye oil contango?
Oil has been trading pretty range-bound of late, but there is one interesting phenomenon occurring in the market.
The contango — with us since the latter part of last year — appears finally to be narrowing both in the WTI and Brent markets,
Roll-yield losses, redux
As discussed here previously, the current state of contango in the crude-oil market is failing to dissuade retail investors from piling into long WTI futures positions. This is despite the fact that the contango means investors in passive ETF-type funds stand to lose on every contract expiry (because funds have to pay a premium to roll positions into the next month).
How contango affects oil ETFs
Hat tip to Abnormal Returns which draws attention to this oil post on Market Folly.com.
The Market Folly piece highlights why retail investors should most definitely be interested in the forward oil curve,
Traders profit as ship-stored oil doubles
Oil companies and traders are storing enough oil in supertankers to supply the world for one day, in one of the most striking signs of supply outstripping demand as the impact of the economic crisis overshadows a string of Opec production cuts,
Energy forward curves are tricky for Bloomberg
Forward curves in energy often lead to confusion. It’s very tempting to see them as a forecast of price, however, as FT Alphaville and Reuters columnist John Kemp (former Sempra analyst) have argued frequently — it’s not as easy as that.
Profiting from a contango, not so easy
Bloomberg calculates that the current contango in crude has reached its steepest for a 12-month forward period since 1998. The news agency writes:
In the worst year ever for oil, investors can lock in the biggest profits in a decade by storing crude.
Is it a bird? No, it’s a super-contango
Oil prices may be falling, but how long can we expect them to stay low?
Writing in today’s FT, Daniel Yergin, Chairman of Cambridge Energy Research Associates, warns that lower prices will force energy companies to scale back their budgets and hold back on new projects (fossil and green).