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’Euro crisis, Brent oil edition
Courtesy of Olivier Jakob at Petromatrix, FT Alphaville presents the price of front-month Brent oil futures expressed in euro terms:
That would be echoes of the 2008 record oil price. This time,
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,
Fundamentally speaking…
From Olivier Jakob at Petromatrix on Wednesday:
While crude oil futures continue to be supported by the Iranium premium, the products are not following and the light-end cracks are suffering further. The Naphtha and RBOB cracks to Brent are going as we expected deeper into negative territory and the pressure is now also coming to the European Distillates physical premiums.
“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.
Money managers and commodities, the case against
Here’s an interesting chart from the EDHEC-Risk Institute’s latest report on long-short commodity investing:
For those who believe that a build-up in long positions by money managers was responsible for fuelling the 2008 record rally in commodities,
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.
Goldman on who’s really wagging the oil market
If you’re wondering what Goldman Sach’s view on crude is — it can be summed up in one neat sentence from their latest research note:
The world crude oil market remains exceptionally tight.
The reasoning is pretty straightforward.
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.
What happens when you lose a global oil benchmark…
Another one, somewhere in the world, flourishes…
From the Dubai Mercantile Exchange — the keeper of the world’s only possible alternative to the ailing WTI and Brent crude contracts (for now) — on Monday:
Speculators, slapped
The US doesn’t like high oil prices. Neither does it like the speculators it thinks exacerbates them.
So why not take aim at both?
On Thursday the International Energy Agency announced it would release 60m barrels of oil from emergency stockpiles in response to the Libyan crisis (which,
The SPQR
Introducing the SPQR: the Special Petroleum Quantitative Reserve.
Some 36 years in the making, specifically designed to provide the US (and via that global markets) with vital oil supplies if and when an emergency strikes,
WGO – What’s going on in Brent-WTI? [updated]
First there was Cushing syndrome. Then there were Brent market antics. Now, nobody knows what’s going on in the Brent-WTI spread.
The difference between the two contracts has (once again) reached record levels.
Re-inventing Opec
Wednesday’s Opec meeting may have resulted in a no-change decision on production targets, but as more and more people are noticing, its importance lay elsewhere — in signalling some significant turmoil within the organisation itself.
Et in Cushing ego
Wow. Turns out that in 2008 (into the mega rally time period) someone may have been “squeezing” oil after all.
As the FT reports:
The US commodities regulator has charged a trading house and two individuals with manipulating oil prices in 2008 by amassing dominant positions in the physical market that created the impression of a shortage.
And now Goldman says the commodities correction is over [updated]
Having been proven right about their prediction of a rather substantial correction in commodities earlier this month, Goldman Sachs is now out with a new view.
A bullish view.
As Jeffrey Currie and team wrote on Tuesday:
There’s no change for the US driver…
… because the gasoline crack (the difference between the price of crude and the price of gasoline — a key metric in determining whether there’s enough incentive for a refinery to process crude) is roofing.
Here we go again
Related link:
Commodity sell-off 2011: is this it? – FT Alphaville
There’s always a silver lining…(even in a commodity rout)
And on Thursday that lining was apparent in the gasoline market.
As Stephen Schork of the Schork Report noted on Friday:
You know it has been a bad day when a 6.84 per cent drop can be described as the best performance of the complex,
Rout
A bloody day across the commodities complex.
Bye, bye Cushing syndrome (possibly)
By now, anyone following oil markets will be familiar with Cushing syndrome. The one-way flow problem which affects the Cushing delivery point for Nymex WTI futures in Oklahoma preventing oil that’s gathered there to travel to alternative domestic or sea-borne markets where demand is higher.
A little less Brent…
Ever wondered how much Brent there actually is in a barrel of Brent oil?
Answer: Not very much, and increasingly less.
The following chart from JBC Energy on Monday might be of interest to anyone who has recently repositioned from the WTI market and into the Brent contract instead:
BarCap on oil-fuelled global inflation
There were several points of interest (defined as “stuff we did not know”) in a new BarCap note about the potential effects on global inflation if oil prices keep rising.
After the week of oil prices we’ve had,
IMF wakes up to oil price rises…
… and not a moment too soon.
It’s been quite a couple of days for oil prices, with front month WTI crude hitting $110 on Thursday for the first time in more than two years:
Why? Take your pick:
The Saudi capacity puzzle
Could Saudi Arabia be telling porkies when it comes to its spare capacity capabilities?
It’s something Goldman Sachs analysts are wondering on Tuesday.
For example, they’ve deduced — from reverse-engineering the kingdom’s production levels — that Saudi may have raised output before the crisis in Libya ever broke out.