CL Spreads

"we have come off almost 20%, so careful where you short because some additional backwardation in the curve would be understandable"

Excuse my ignorance - but when you mention backwardation in the curve, are you referring to a tightening of the n/q spread or backwardation between the two contracts.
 
Backwardation and Contango refer to the general shape of the forward crude oil curve - please google or visit the Nymex site. The crude oil spread curve and the natural gas spread curves are their own little galaxies. There are entire trading groups and funds who specialize in the craft. Just ask Brian Hunter of Amaranth fame.
 
bone - same question as james dean... do you mean that july/aug will tighten? because no part of the crude curve is in backwardation at the moment, take it you mean the move down means people taking profits/bounce/whatever giving extra support to the front month?
 
Dean and Rose:

As you guys know, the energy spreads have their own unique set of idiosyncracies 'and local knowledge' kind of nuances to them. I mean, the floor locals and OTC brokers even quote them different than the interest rate and ag brokers do.

I am going to throw out a 'general tendancy' for many calendar spreads in 'normally' or 'traditionally' shaped curve environments (which we are not in): As a flat price front month market sells off, you will usually see some firming up of the front month calendar spread. True for the bond spread and true for the oil spread under typical 'backwardation' conditions which reflects the carry yield premiums.

The interest rate yield curve is batty and the crude oil curve is batty, so I have seen that tendancy be much less common than it used to be whn oil traded between $30 and $50/bbl. for years on end. Look at the oil curves for the past three years after the market sold off from historically high levels.
 
ok well i work in the field of crude markets so know about the conventions etc. i think your point is that after a sell of you see a relative firming of front month as people take profit...... (of either flat price, or the front spread)
 
Right. Commercials short strips (producers) are scale traders, and you will see them buying some calendars to roll their short positions forward (deeper) as the market sells off. They don't necessarily wait for the third week of the month to roll. Not a rule, but a tendency.
 
I would like to see the July-Augie come off some more before I took a short. Call me conservative to the max in terms of risk/reward skew - I am perfectly willing to trade some range in exchange for more confirmation. Remember that we saw -50 in April as the first downleg correction max level.
 
looks like n/q doesn't like the -1.00 to -.90 area and keeps coming off...4000 lot order flashed on the offer today around the -1.28 area. We'll have to see where this goes, especially with what's going on with BP.
 
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