From FT Alphaville:
Just when it makes sense to sit in oil futures…
… many funds have stopped buying.
While at first that move might seem logical — they are obviously expressing a bearish view when it comes to future demand — it’s actually another example of how the mechanics of the market see funds damned if they do and damned if they don’t.
The inbuilt irony now is that as funds are exiting, or arguably simply not buying anymore, the curve is flipping into strong backwardation in Brent.
Note the chart below from S&P GSCI’s weekly commodity perspective:
Not only should that structure theoretically encourage upside moves in the flat price of oil, it brings the added bonus of yield collection (via the rolls) for anyone prepared to be long oil futures on a continuing basis....MORE