What's going on in the Jan/Feb Crude Spread?

I should clarify.... I mean Feb should come down in absolute terms, not that the spread will narrow necessarily.

Can't believe it's -6.16 bid, @ -6.00 at the mo.

Can anyone else explain such a big contango on the day of settlement? Is it literally that people need to get out of their longs to avoid delivery and nobody wants to buy because no one actually needs any oil and so the Jan is really getting a kicking in comparison to the Feb?
 
Just spoke to a client. It's actually because of the delivery capabilities of Cushing.

The storage tanks and pipeline are pretty much max'd out and already fully booked, so the standard cash and carry element that usually limits the extent of the contango is no longer possible. You can't take physical delivery of January oil if there's nowhere to store it or 'room in the pipe' to take it away from Cushing.

You learn something new everyday! :)
 
So if it's simply people dumping Jan contracts to avoid delivery this would imply a bounce in the crude next week? Alternatively, if storage is full then demand for the storage demand should decline leaving demand to be driven largely by usage. Could this imply a drop?
 
Quote from jweb:

So if it's simply people dumping Jan contracts to avoid delivery this would imply a bounce in the crude next week? Alternatively, if storage is full then demand for the storage demand should decline leaving demand to be driven largely by usage. Could this imply a drop?
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Hi Jweb.

Not too sure. It would be logical to think that they'd 'meet in the middle' wouldn't it, which would suggest a drop in the FEB contract, (which will be front month come monday).

Looking at it from another angle.... and going back to the charting aspect. How will this appear on Monday. A lot of people only look at 'Crude Oil' not taking into consideration the roll into the next month. If they see it pop up from $34 to $41 they may be inclined to sell to 'fill the gap'.

Excluding any other outside factors (which i know you can't do!!), you'd have to say the Feb contract is going to come off.
 
Quote from Papa Lazarou:
Excluding any other outside factors (which i know you can't do!!), you'd have to say the Feb contract is going to come off. [/B]
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What's the betting it roofs now and I make myself look silly!!!! :D
 
The dollar slid pretty hard over the past 10 days and the crude didn't respond at all. Not even the OPEC headlines could hold this thing up.

The last commitments of traders was pretty flat but bias was to the short side.

Who and why would anyone at all be selling the spread on expiration day at 8 bucks under?

The theory is that this is commercials desperately trying to dump crude on whoever is left holding the bag at the end of the day today?
 
Wasn't it a few months ago where the shorts got killed on expiration with a spike from 100 to 120 on the expiry month (but the forward month was still around 100-105)
 
Quote from Papa Lazarou:

Just spoke to a client. It's actually because of the delivery capabilities of Cushing.

The storage tanks and pipeline are pretty much max'd out and already fully booked, so the standard cash and carry element that usually limits the extent of the contango is no longer possible. You can't take physical delivery of January oil if there's nowhere to store it or 'room in the pipe' to take it away from Cushing.

You learn something new everyday! :)
More...

Excellent info Papa.
Thanks!
:cool:
 
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