Overall inventories are down across the US.
Shoulder months (spring/fall) are always tricky as refineries switch configurations so it's difficult to find any type of finality or certainty in this analysis. Often times prices cannot be justified.
Anyone can explain this WTI backwardation?
- Thread starter UFBS
- Start date
Shoulder months (spring/fall) are always tricky as refineries switch configurations so it's difficult to find any type of finality or certainty in this analysis. Often times prices cannot be justified.
Quote from ogarbitrage:
Overall inventories are down across the US.
Shoulder months (spring/fall) are always tricky as refineries switch configurations so it's difficult to find any type of finality or certainty in this analysis. Often times prices cannot be justified.
I've looked up this some more since the backwardation widened again today.
It's completely irrational since the rumors are they are going to reduce the imports to protect the price and domestic US production is not enough to cause a glut alone.
Every positive price shock in the front months causes no rise in the end of the curve, but instead negative price shocks cause the end of the curve to dip even more. Some interesting game is at play here but I am sure it is going to reverse very soon and it will be a quick snap back to contango.
You will enjoy Downey's Oil 101.
I doubt any book can explain every situation in the market, but till I read it, how would you explain this crazy backwardation? Now we don't have Syria or nuclear strikes to justify these crazy front month prices which are not falling despite "taper on" mentality. Even on days when there is a drop in the front months, front months drop by 0.60% and back months drop 1.0%! If instead price rises, front rises by 1.0% and back months rise by only 0.5%!! So far there's been a wide bias which guided back months even lower.
Are the producers so desperate to hedge in future months at low prices or the demand for July crude is so low that nobody wants it? Or perhaps trading firms have bought oil off-market at 70$ / bbl and are now happy to sell it at 90$ a year from now?
These things are historically very rare
Have you consider from the business point of view?
The CEO of Shell obviously doesn't want to sell oil at extremely low prices, neither does he necessary have to sell oil at extremely high prices.
What he needs is to sell oil at higher than overall production cost.
If I have oil in Spring, I would't want to dump them all out in the market, that'll be suicidal. And if I have oil in summer, I wouldn't mind selling it cheaper because the demand will be higher. Lower profit margin, higher sales quantity.
You have a legitimate question so ignore the others that try to belittle you, plenty of pests in this forum.
The CEO of Shell obviously doesn't want to sell oil at extremely low prices, neither does he necessary have to sell oil at extremely high prices.
What he needs is to sell oil at higher than overall production cost.
If I have oil in Spring, I would't want to dump them all out in the market, that'll be suicidal. And if I have oil in summer, I wouldn't mind selling it cheaper because the demand will be higher. Lower profit margin, higher sales quantity.
You have a legitimate question so ignore the others that try to belittle you, plenty of pests in this forum.
Ok this makes sense, but still doesn't account for oil trading firms and tank farms...Where are they now??
Today the difference in price between April and August contracts reached 4$! You sell the oil now (there's plenty of it sitting around) and have it delivered back to you in 4 stupid months for 4$ sure-fire profit per every damn barrel.
Now makes me pissed because I do not have any myself to sell, heck I even don't have a tank farm, however it's a big disadvantage and a real pity to stay sitting on the sidelines.
Plus chances are it's going to be more expensive in the summer.
Ignore fundamentals.
Oil is just another financial asset, supply demand doesn´t apply anymore as a price driver. Brent doesn´t even move when inventories are out.
In my opinion as long as 0 interest rates and QE policies remain in place there will be no volatility a no contango.
Oil markets are a manipulated piece of sh..t.
Oil is just another financial asset, supply demand doesn´t apply anymore as a price driver. Brent doesn´t even move when inventories are out.
In my opinion as long as 0 interest rates and QE policies remain in place there will be no volatility a no contango.
Oil markets are a manipulated piece of sh..t.