Friday, October 28, 2011

Oil: “Something structural has changed in current fundamentals”

FT Alphaville flags a good one:
John Kemp at Reuters has penned a cracking column on the current peculiarities afflicting the crude markets.
As Kemp notes, ask anyone in the market — specifically the physical market — and they will tell you the market is tight. Not just tight. Really tight. (And most likely that the recent backwardation reflects this tightness.)
He writes:
Hedge funds and other money managers remain convinced oil prices will rise. The ratio of money managers with long positions in WTI-linked futures and options to those running short positions remains 3:1, according to data released by the U.S. Commodity Futures Trading Commission (CFTC). For Brent futures and options, the long/short ratio is 1.77:1, according to Intercontinental Exchange (ICE), lower than earlier in the year but still bullish.
Physical traders are also bullish. “Bullish physical oil traders, who have been warning for months of a tightening market, have so far won the game against bearish macroeconomic hedge funds” as my colleague Javier Blas wrote in the Financial Times on Tuesday (“Swing in WTI price curve leaves oil traders reeling”, Oct 25).
Yet, despite all this bullishness, there is one inescapable fact. Prices have been trending lower...MORE