CL move today

maninjapan · Jul 23, 2014

Can anyone offer any insight into the move in the front spread today? Just seemed to keep going while the rest of the curve went nowhere...
Ukraine / Russia coupled with a larger than expected drawdown in inventories?
Trades only see this as a very short term situation?
All due to front month speculation while physical traders are taking no part?
Are people seeing this a good opportunity to short this? Or still a good possibility for more in the same direction?

NoDoji · Jul 23, 2014

What I see on a daily chart of oil is a generally flat condition with a slight upward bias in that price is ever so slightly above 50% of the last swing range (high to low). I personally see no reason to initiate a new swing position in either direction at this level.

nazzdack · Jul 23, 2014

maninjapan said:
----front spread today?
----seemed to keep going while the rest of the curve went nowhere...
----Ukraine / Russia....
----larger than expected drawdown in inventories?
----very short term situation?
----front month speculation....
----physical traders are taking no part?
----good opportunity to short this?
----good possibility for more in the same direction?

FWIW ..... It could have something to do with an expectation that crude oil being transported by railroads to Illinois and Texas refineries could be slowed down because of new regulatory guidelines.

sellindexvol66 · Jul 23, 2014

NoDoji said:
What I see on a daily chart of oil is a generally flat condition with a slight upward bias in that price is ever so slightly above 50% of the last swing range (high to low). I personally see no reason to initiate a new swing position in either direction at this level.

you do realize he was asking about the front switch (spread)? the futures spreads behave very differently from straight up futures.

nemesis45 · Jul 23, 2014

Cushing was a huge drawdown. I expect the front month spread to remain bullish.
Cushing inventories seem to be affecting the front month spread a lot.
I would wait till the end of the driving season or some inventories starting to build up at cushing to start shorting the front month spread.
Meanwhile expect it to trade within 1.30 - 1.80, would not be surprised a lot if it break higher.
Was surprised the second month did not move up, but still a lot of days to expiry - wouldnt bet on the front- seoncd fly.

maninjapan · Jul 24, 2014

Thanks, that all makes sense and in which case possibly more upside to follow. I was just surprised that the move was solely in the front spread while the rest barely budged... will be watching with interest over the next few days and weeks....

Does anyone see what is happening here as out of the ordinary? Or to be expected considering the circumstances???

ogarbitrage · Jul 24, 2014

maninjapan said:
Does anyone see what is happening here as out of the ordinary? Or to be expected considering the circumstances???

Seems to be expected given the draw in supply and the strength of physical. Phys has been trading +$1-3 over the front month future. There was also considerable selling of the backs that caused some spreads to rally while the front was only up ~.70.

EnergyTrader · Jul 27, 2014

ogarbitrage said:
Seems to be expected given the draw in supply and the strength of physical. Phys has been trading +$1-3 over the front month future. There was also considerable selling of the backs that caused some spreads to rally while the front was only up ~.70.

At July 25 close WTI spot was trading at $102.10 which is on par with the front month WTI close of $102.09. (Brent spot was $107.39 which is a full $ below the font month close of $108.39).

I suspect the market on Wednesday overreacted to the WTI crude oil drawdown at Cushing and underestimated the effect of having an almost $105 spot price for WTI on the refineries : they would stop buying crude until prices came down since the refinery margins are not there at $105 spot, especially given the huge stockpiles of refined product refineries had built up.

NoDoji · Jul 27, 2014

sellindexvol66 said:
you do realize he was asking about the front switch (spread)? the futures spreads behave very differently from straight up futures.

The OP asked if anyone could offer any insight into the move in the front spread that day and if people saw this as a good opportunity to short "this" ?

Because I had no idea if the OP was referring to an arb play or to shorting the futures directly, I offered my opinion of the state of the futures. I have no experience with spreads and so had nothing to offer in that regard. That's probably your area of expertise

maninjapan · Jul 28, 2014

NoDoji said:
The OP asked if anyone could offer any insight into the move in the front spread that day and if people saw this as a good opportunity to short "this" ?

NoDoji, but you are right, it could have been a bit clearer. All input is appreciated though and I did however have a similar opinion to yours RE the outright which is what confused me... Outright didn't look clear either way but the move in the front spread looked a little extreme.