20 reasons why Oil to NEVER hit $135.00 again...dated: May 22, 2008
- Thread starter increasenow
- Start date
Oil heading lower...8:15AM San Diego time...lower...
the contract is not physical. It is cash settled as delivery can not be made for the standard contract volume in what is a cargo and not a pipeline market. In the USA, the futures market has supplanted the informal forward market. For Brent, the two markets are complementary, in that the futures market relies on the forward market to provide a physical grounding through the construction of the IPE index. In general terms, the futures markets set the level of prices, and the physical markets set the differentials.
In the USA, the near month NYMEX contract is as close as one can practically get to spot pipeline crude oil, given the logistics of pipeline scheduling. In that sense, there is no such thing as dated WTI. In Brent of course there is the problem of dated Brent. The Platt's quote for dated Brent directly or indirectly prices about two-thirds of all oil moving in international trade. Yet dated Brent is prone to chronic distortions: there is little reported trade, no trade in absolute prices as opposed to a differential, and the quote is leveraged by CFD market activity. One can not get away from the fact that the quote is often manipulated.
The logic of using dated Brent as an index is that with delayed pricing from time of loading, it guarantees competitiveness of long haul crude oil with short haul at the time of delivery to Europe. Moving away from this reduces that competitiveness, as the basis risk between futures and spot can be significant. On the other hand, if dated Brent is prone to wander off on its own due to distortions, then its use does not exactly pick up true spot values, and leaves both producers and refiners prone to frequent annoyance and discontent.
I am always perplexed when significant emergin markets sovereign funds distort the physical Brent market through a deliberate trading strategy. Perhaps the idea of trading as an independent and separate profit centre has just gone too far in some modern state owned corporations.
So the delivery Brent market is attempted to be kept in line through the Nymex paper futures market which is more focused on the near month contract??
However, the Brent delivery market is getting played by the sovereign funds and middle-eastern oil hedgers and traders, which affects the Nymex paper market as it prices the near month??
We DO HAVE Amadinejad sitting with 5 days Iran oil production simply idling in the Persian Gulf....price of oil tanker leases have gone up from $50k/day to $150k/day in under 2 months while he creates the false demand for his oil.....easy money for whoever's in the know. When he moves those tankers - would make for a nice, quick down move.
The big physical traders made their money with the basis (The difference between cash vs futures prices). Right now, the brent cash price is about $128.65 and the Brent futures at ICE is trading around $131.38, is a $2,73 dollar per barrel what those Physical traders are making when they buy brent crude (which is not much in reality), and they are traying to maximize this basis margin by manipulating the ICE future contract. (Brent Crude is the price reference for 2/3 of the worlds oil.)
spot price today.
Take a look at this article. (the hedge Funds are puting their hands on the physical market).
http://www.bloomberg.com/apps/news?pid=20601109&refer=news&sid=a5ReSgLY0jAE
finally, the're are a lot of reasons why the Brent can trade at premium vs The WTI, but in today's world is just about those financial "basis trading". ( At some point in early 80's the basis between cash vs future was about $9 dollars per barrel, You Ain't Seen Nothing Yet!)
spot price today.
Take a look at this article. (the hedge Funds are puting their hands on the physical market).
http://www.bloomberg.com/apps/news?pid=20601109&refer=news&sid=a5ReSgLY0jAE
finally, the're are a lot of reasons why the Brent can trade at premium vs The WTI, but in today's world is just about those financial "basis trading". ( At some point in early 80's the basis between cash vs future was about $9 dollars per barrel, You Ain't Seen Nothing Yet!)
marketsurfer's revised market call:
THE OP'S PREMISE 100% CORRECT TOP OR ALMOST IS IN. reasons may not be accurate but price call is.
<i>Several weeks ago, I made the call that oil would not surpass $125.00/barrel prior to a pull back to near $100.00/barrel. Needless to say, I was wrong as oil hit an all time high of $135.09 yesterday prior to pulling back. This raging bull market and the ripple effect it is having on the US economy is eye opening to say the least.
Every industry, from the obvious transportation sector to the not so obvious is feeling the heat from the surging prices. However, I do believe we are finally very near a top in oil.
Let me explain why, Bloomberg reported earlier that the last price spike to $135.09 was clearly due to a short squeeze.
What is a short squeeze?
It is when there are a large number of shorts in the market who all move to buy them back at the same time, forcing prices upwards. Open interest has been shrinking since March in oil contracts. It has fallen 8.1 % to 1.36 million in just a week according to NYMEX figures. This drop corresponds to a 2.6% price gain over the same period, clearly supporting the short squeeze theory.
Bloomberg quoted Stephen Schork, of the Villanova, PA based Schork Group as saying "In a market like today, which is trending higher while open interest is falling, it's a sign that money is moving out of the market."
Facts are that the interest on NYMEX crude oil futures peaked on March 13th at 1.5 million barrels. A record number of small speculators, per the CFTC, were short, betting on a fast drop during the week of May 6th.
Well, at the very least, it's comforting to know that I was not alone with my short call earlier! During congressional hearings yesterday, called to address the spiraling upward prices, the president of Shell Oil, John Hofmeister, stated that oil should be between $35.00 and $90.00 a barrel and urged Congress to permit exploration for domestic sources of oil. I stand by my contention that it is a speculative frenzy driving prices at these levels, and not true supply/demand dynamics. We may be due for a pull back.
Let's take a look at the daily technical picture right now in oil. As you know, there has been a strong uptrend since February 10th when price was at $86.24. Price has been nicely above the 50 day moving average dropping back to test the 50 day SMA on 3 ..................................</i>
THE OP'S PREMISE 100% CORRECT TOP OR ALMOST IS IN. reasons may not be accurate but price call is.
<i>Several weeks ago, I made the call that oil would not surpass $125.00/barrel prior to a pull back to near $100.00/barrel. Needless to say, I was wrong as oil hit an all time high of $135.09 yesterday prior to pulling back. This raging bull market and the ripple effect it is having on the US economy is eye opening to say the least.
Every industry, from the obvious transportation sector to the not so obvious is feeling the heat from the surging prices. However, I do believe we are finally very near a top in oil.
Let me explain why, Bloomberg reported earlier that the last price spike to $135.09 was clearly due to a short squeeze.
What is a short squeeze?
It is when there are a large number of shorts in the market who all move to buy them back at the same time, forcing prices upwards. Open interest has been shrinking since March in oil contracts. It has fallen 8.1 % to 1.36 million in just a week according to NYMEX figures. This drop corresponds to a 2.6% price gain over the same period, clearly supporting the short squeeze theory.
Bloomberg quoted Stephen Schork, of the Villanova, PA based Schork Group as saying "In a market like today, which is trending higher while open interest is falling, it's a sign that money is moving out of the market."
Facts are that the interest on NYMEX crude oil futures peaked on March 13th at 1.5 million barrels. A record number of small speculators, per the CFTC, were short, betting on a fast drop during the week of May 6th.
Well, at the very least, it's comforting to know that I was not alone with my short call earlier! During congressional hearings yesterday, called to address the spiraling upward prices, the president of Shell Oil, John Hofmeister, stated that oil should be between $35.00 and $90.00 a barrel and urged Congress to permit exploration for domestic sources of oil. I stand by my contention that it is a speculative frenzy driving prices at these levels, and not true supply/demand dynamics. We may be due for a pull back.
Let's take a look at the daily technical picture right now in oil. As you know, there has been a strong uptrend since February 10th when price was at $86.24. Price has been nicely above the 50 day moving average dropping back to test the 50 day SMA on 3 ..................................</i>
ICE Brent Crude IS a physical or financially settled contracted...click on this link:
https://www.theice.com/publicdocs/IPE_EF_Explained.pdf
also read this from the ICE website...
Trading Methods:
Electronic futures, Exchange of futures for physical (EFP), Exchange of futures for swap (EFS) and Block Trades are available for this contract.
Delivery/Settlement Basis:
The ICE Brent Crude futures contract is a deliverable contract based on EFP delivery with an option to cash settle, i.e the ICE Brent Index price for the day following the last trading day of the futures contract.
https://www.theice.com/publicdocs/IPE_EF_Explained.pdf
also read this from the ICE website...
Trading Methods:
Electronic futures, Exchange of futures for physical (EFP), Exchange of futures for swap (EFS) and Block Trades are available for this contract.
Delivery/Settlement Basis:
The ICE Brent Crude futures contract is a deliverable contract based on EFP delivery with an option to cash settle, i.e the ICE Brent Index price for the day following the last trading day of the futures contract.
Sunday night electronic, shortened monday and into Tuesday May 27th should be very, very interesting...very back to $129.00 levels