The WTI super contango is back — which means time to prepare for price distortions, offshore tanker storage buildup and the general return of evil hoarding oil spivs.I like it when Izabella does her evil Mwa ha ha laugh.
Mwa ha ha.
Okay, to be less sensationalist about it, here’s the term structure as it stood on Wednesday, compared to the term-structure of nearest comparison, Brent crude:
As readers can see, the deviation between the two types of crude is indeed pretty sizeable at the front end of the curve.
Olivier Jakob over at Petromatrix believes this may mean a spell of upcoming flat price downside risk.
What’s more, he says, the contango is only likely to intensify in the days to come because of GSCI commodity index fund rolls, which start on Wednesday.
As Jakob writes in his daily note:
The contango plunge on WTI continues to move WTI to a very strong discount to Brent. The last time we had WTI moving at such a discount to Brent was in the last half of April. That was followed by a -22 $/bbl flat price drop in WTI in the first half of May.History does not necessarily repeat itself and the May sell-off in crude oil was coming from a higher flat price level, was helped by a sell-off in equities and the crude oil physical differentials in the North Sea were not as strong as today. However, in our opinion the equity rally of last week is still at risk given that there have been continuous outflows from equity mutual funds since early May (a record 17th consecutive weeks of outflows).If physical premiums in Europe are historically strong (especially on Russian REBCO) with the arbitrage values that have now been priced we would expect that Brent will stabilize and from the current arbitrage values it will have more difficulty in pulling WTI higher. In other words, we do take the current WTI contango plunge as a flat price downside risk....MORE
There are so freakin' many oil ETF's I'll just link to the list. From Stock-Encyclopedia.
