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Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,057 since Dec 2013
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Thanks @ron99. I reach similar conclusions.
I would add that imports have also been a multi-year lows for most of the last 3 months - which is probably not surprising given production is at highs - while inports have increased from the lows, the last 2 years they have increased further over the next several weeks before dropping again in Q4. Prior to that imports tended to drop in 2H more in line with runs.
Do you happen to have a chart for crude imports? (not sure on the copyright of mine)
I cant comment based on an intra-day basis but for long(er) time frames I recommend either being short or avoiding it completely. I went long it in 2009 at 34 with crude at $40. I scratched (!!!) the trade some months later with crude at $60. Now with crude roughly at the same price it was when I got long back in the day USO is amazingly 14 and change. Contango just eats this product alive.
@SMCJB Yes, the wise thing to do as I understand it with a Contango is to "buy" the spread, ( buy the deferred and sell the near). Sept-Oct up, Oct-Nov up, etc. The problem is that once the move is on, do you really want to chase it?
The spread that I believe looks good is to buy the refined = RB Sept. (currently Inversed) and sell the raw = Crude maybe Oct.
@ron99 Thanks for the input.
I really missed the fact that RB is inverted almost all year round due to its demand (or so they say). So it was really a "guess" call.
I have an open question:
I am trying to understand how Commercials Net Position affect prices in Contango and Inverted markets? Does anybody have an input on this? I mean, it makes sense to me to see a Net Long position in Contango but maybe somebody could share a setup not only in CL but other instruments (ie grains, gold, etc).
Crude oil prices continued their slide yesterday mostly driven by the surprise devaluation of the Chinese currency. This action by the Chinese government sent a message to the world that all is not rosy in China and stimulus and monetary policy actions will continue to be the norm.
So far in early morning trading, prices are rebounding modestly on a supportive monthly oil market forecast issued by the International Energy Agency (IEA). The IEA forecast showed a stronger than anticipated level of global demand as well as non-OPEC crude production moving into a modest contraction in 2016.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,057 since Dec 2013
Thanks Given: 4,409
Thanks Received: 10,225
As I mentioned I don't like having positions close to the front because that's when fundamentals can really distort the curve and there are companies out there that have a significant advantage in the fundamental picture. Remember CL now represents the price of crude at a constrained delivery point and is no longer the world benchmark it used to be.
The thing that would concern me about putting on any significant front end spread play currently is where the butterflys are trading. UVX is trading +27 as we speak, VXZ is trading -10 but then the next 5 flys are all around -6. That's a rather strange relationship and implies to me that something not normal is going on. Why is Sep/Oct worth 27 more than Oct/Nov when the market is apparently as weak as it is? But then Oct/Nov is worth 10 less than Nov/Dec which is maybe more what we would expect. When Sep expires, is the same dynamic suddenly going to apply to Oct/Nov, or is Sep actually holding Oct/Nov up and when it expires that spread plummets?
Saying all that .. interestingly Brent seems to have a very similar structure which might imply it's not purely a Padd II crude issue.