Anyone can explain this WTI backwardation?

U

UFBS

I really don't get this stubbornly backwardated market.

What kind of tightness we face to justify almost 1$ price difference between months? If you look Brent, the futures curve is much less steep. With WTI looking 12 months ahead, you get oil 7$ cheaper, so why those (overfilled) tankers are not being unloaded like crazy on the market to crush the front month prices??

I can *maybe* justify Jan or Feb crude to be a bit high due to seasonality, but Aprili and May are more expensive than summer months??

Referring to recent debate in FT, I am starting to believe our beautiful and beloved oil market is rigged!
 
Every major curve in the world has been backwardated for the last ~18-24 months or so. Marginal supply disruption (Iran/Libya), weak cracks across Europe, product glut and decent cracks in the U.S, strong demand in Asia (but weak/negative cracks).

The conventional rhyme or reason to the current curves are the massive light sweet supply anticipated in the coming years.

WNM3TZK.png
 
Simple, expectation of FED raising rates in the future(after tapering) is already priced in.

Agree?

:)

Quote from UFBS:

I really don't get this stubbornly backwardated market.

What kind of tightness we face to justify almost 1$ price difference between months? If you look Brent, the futures curve is much less steep. With WTI looking 12 months ahead, you get oil 7$ cheaper, so why those (overfilled) tankers are not being unloaded like crazy on the market to crush the front month prices??

I can *maybe* justify Jan or Feb crude to be a bit high due to seasonality, but Aprili and May are more expensive than summer months??

Referring to recent debate in FT, I am starting to believe our beautiful and beloved oil market is rigged!
More...
 
Quote from tangentShot:

Simple, expectation of FED raising rates in the future(after tapering) is already priced in.

Agree?

:)
More...

Maybe in 3 years time lol :)

But how the heck you explain that spring months are priced considerably higher than summer months??

Demand is (seasonally) shit in spring and good in summer due to driving season.

It's not that we have a booming economy right this month either lol

Stocks are getting full, tanker utilization rate went up again...I really don't get the game!

Perhaps only if they're driving it to extremes just to dump everything and reverse it swiftly clearing the small players on the way...Pump and dump...Not to mention the profit from options trades ;)

Look just, someone's been playing also with EUR/CHF today...
 
As time moves forward, do you notice that the prices of Spring & summer do converge?

Quote from UFBS:

Maybe in 3 years time lol :)

But how the heck you explain that spring months are priced considerably higher than summer months??

Demand is (seasonally) shit in spring and good in summer due to driving season.

It's not that we have a booming economy right this month either lol

Stocks are getting full, tanker utilization rate went up again...I really don't get the game!

Perhaps only if they're driving it to extremes just to dump everything and reverse it swiftly clearing the small players on the way...Pump and dump...Not to mention the profit from options trades ;)

Look just, someone's been playing also with EUR/CHF today...
More...
 
Quote from tangentShot:

As time moves forward, do you notice that the prices of Spring & summer do converge?
More...

I don't get it. How come converge? Right now for ex. GCLJ4 is 96.84 and GCLQ4 is 93.90, which is a nice 3$/bbl discount for oil to just sit for only 4 months waiting a peek-demand season.
Who needs April crude so much to pay this premium??
 
When I mean converge, I mean that the front month & it's next expiry will have to converge.

If you're now in April's expiry, prices will have to converge with May's.

This is due to arbitraging activities. If this is not arbitrage out, there'll be free lunch everywhere.

Quote from UFBS:

I don't get it. How come converge? Right now for ex. GCLJ4 is 96.84 and GCLQ4 is 93.90, which is a nice 3$/bbl discount for oil to just sit for only 4 months waiting a peek-demand season.
Who needs April crude so much to pay this premium??
More...
 
Quote from tangentShot:

When I mean converge, I mean that the front month & it's next expiry will have to converge.

If you're now in April's expiry, prices will have to converge with May's.

This is due to arbitraging activities. If this is not arbitrage out, there'll be free lunch everywhere.
More...

Ok, that's another issue, although:
Take the front month (GCLF4) i.e. Jan crude and compare to G4 i.e. Feb crude...there is a spread of about 0.27$ although the Jan contract expires in 2 days. It will definitely converge (with spot price) only once that the delivery month starts, but in order to take advantage of this you need have a storage tank and be able to take delivery or deliver.
And quite often there is a 0.5$ spread on expiry - but only the big players taking deliveries can take advantage of this.
 
Quote from UFBS:

I really don't get this stubbornly backwardated market.

What kind of tightness we face to justify almost 1$ price difference between months? If you look Brent, the futures curve is much less steep. With WTI looking 12 months ahead, you get oil 7$ cheaper, so why those (overfilled) tankers are not being unloaded like crazy on the market to crush the front month prices??

I can *maybe* justify Jan or Feb crude to be a bit high due to seasonality, but Aprili and May are more expensive than summer months??

Referring to recent debate in FT, I am starting to believe our beautiful and beloved oil market is rigged!
More...
]

It was way way more backwards during the Syria thing.. Do some historical studies.. The market is supply and demand.. Simple as that.
 
Quote from tangentShot:

When I mean converge, I mean that the front month & it's next expiry will have to converge.

If you're now in April's expiry, prices will have to converge with May's.

This is due to arbitraging activities. If this is not arbitrage out, there'll be free lunch everywhere.
More...

You can't do a storage arb in a backwardated market. And there is no hard and fast rule that says prices must converge.

Quote from UFBS:

And quite often there is a 0.5$ spread on expiry - but only the big players taking deliveries can take advantage of this.
More...

Storage costs are about 40-50 cents/bbl in today's market, there really isn't much to "take advantage of."
 
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