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What is the Point of WTI Crude Futures?
We're not actually sure anymore.
The contract itself entertains a much lower percentage of market participants who care about anything like physical delivery, has become more of a mandate on economic recovery sentiment (or lack thereof) and only seems useful lately as a track for equity markets, rather than a good metric for the commodity itself. One can probably add to this now a sort of risk asset for traders who call their base currency the Euro, and find their demand for the contract suspiciously flaccid this month. Note the blown out spread versus the predominantly European traded (and more difficult to refine, therefore generally cheaper) Brent contracts. Or you could blame (quite rightly) the absurd storage situation in Cushing, OK, where peaked inventories make WTI storage a difficult proposition.
(click to enlarge)
The liquidity in predominantly cash settled, retail appealing instruments with storage cost issues and denominated in a commodity type that represents only a fraction of the larger global inventory like this is wonderful.
Until it isn't.
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Just a thought, remember all those tankers that are full of crude just waiting to unload their cargo? If they dumped their load into the Gulf of Mexico now, no one would be the wiser and they could go and get more. Why would anyone want to destroy a product just to spur demand? Then you remember cash for clunkers, and all the other stupid ass bailouts and the idea of dumping crude into the ocean doesn't sound so impossible anymore.
I was thinking about all the tankers floating around also +1000
And don't forget about the 1000's of jobs that will be added to clean the oil up. A little quid pro quo between 'bama and BP.
BP will have no troubles from the administration when they raise gas prices to $4.50/gallon this summer to pay for the clean up crews. Think of it as a backdoor tax to spur employment and get the economy moving in and around the gulf states.
yupsy... paitiently waiting for the delivery as contango has gone form 80% then to 4% a month ago... hmm what would I do if I had a tanker of oil- oh deliver
Seems insane. Then you remember that there are a fairly large group of people alive that only care about wealth and accumulating more of it at all costs. So when thought about that way this type of crime is not far fetched.
A report out earlier in the week claims gas prices will not rise much this summer. I need to locate and post it. Hmmmmmm. Every fucking year it goes up in June & July but not his year??
Manipulation.
A bit off topic, but - WTF just hit gold?
Wait till you see swings of $100s of dollars in gold in minutes.... the swing will go both ways.
Oil is looking sick.
We only need 1 or 2 days like that, and the market dies.
Scary, and more probable by the day.
I give you +1000 for noticeing but not with a smile.
There is no point, agreed. However (in addition) the falling price indicates someone is getting out of RINSE-WASH-RELOAD gov sponsored oil speculation trade.
Curious and dangerous to make too much of but, as I write this gold is down to $1221 from the day high of approximately 1250 but physical gold crudely approximated by PHYS up 1.75%
Your use of PHYS as a proxy for physical is fine. What worries me is that bullion vaulting services that claim to be fully allocated are still priced at spot. Why isn't the difference being arbitraged away?
Hi Maff
The mechanics are well beyond me, I do not know enough to offer an opinion, just an observation.
It's like so many other markets (especially the stock market) - yet another way for the big traders to extract money from those dumb enough to think they can beat the house. The problem is the extent to which the WTI futures either directly or indirectly influence prices for physical crude thereby costing us more at the gas pump. It used to be that the futures pulled the physical prices with it. I'm not sure how much that is the case now.
On a related note, I was told a couple weeks ago that the biggest owner of crude oil excluding the oil companies is Goldman. I have always known that Goldman and Morgan Stanley have held a lot of crude in storage. Yet another way for these @ssholes to make money off everyone else. This should be regulated - they should not be allowed to own any crude - stick to banking (or get off the Fed enabled taxpayer handouts).
+1 and the spread continues...
What is the Point of WTI Crude Futures?
Just another investment invented to game the market.
Was it on here or somewhere else that a research piece talked about the eight or nine dollar spread between WTI and Brent?
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heard from smart oil friend of key difference
WTI is controlled and delivered by Wall Street
Brent has no involvement by Wall St
Saudis kicked Wall Street in the balls and took the control lever out of their hands
it is a very big deal
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heard from smart oil friend of key difference
WTI is controlled and delivered by Wall Street
Brent has no involvement by Wall St
Saudis kicked Wall Street in the balls and took the control lever out of their hands
it is a very big deal
And after we figure out the point of WTI, we can figure out the point of Internet Explorer.
mso-style-noshow:yes; +3600
Why, that's like asking what the point is of a rainbow. Or a meadowlark. A daisy. Or a summer sunrise. WTI, like all of those, and more, is something to glory in, something to ENJOY!
Oh, also, when oil companies try to shaft you on royalty payments, it tells you how much you can sue them for.
If we're going tin here, let's use Occam's Tin Razor and go with the most obvious - Oil majors/sovereigns caused blast to prevent more drilling in water, thereby lowering supply and raising price in midterm.
Or maybe it was really just an accident.
WTI's been even more meaningless lately due to its negative spread to Brent.
If this trend keeps going on, oil will soon be arround 42$ where it actually belongs.
Anyone for a bunch of NOK?
After reading a Zero Hedge article on crude oil futures earlier today I was motivated to write something on the topic. I have been railing against the securitization of the oil futures market for some time. It’s nice to see someone else sharing those sentiments. Below are some notes I jotted down after reading the article.
I do have to agree that for 14-15 months, almost without interruption now, and since August, 2007, more generally, that the Nymex crude oil contract has too often been used as a surrogate for the economy, the DJIA or currencies, most notably the euro. However, last week’s sharp decline may have severed the relationships, at least temporarily.
This misbegotten adventure as a surrogate started a decade ago, when a little-known scholarly piece, 15 or 20 years old by then, came into vogue with at least one large investment bank on Wall Street. This piece had been suggesting a 10% commodities exposure as part of any balanced portfolio. For years, this recommendation had been a professorial urging and little more. But, by the late summer of 2007, not only had this investment bank embraced the philosophy, it had won over converts among union pension funds, sovereign wealth agglomerations and – this one should not surprise anyone – university foundations. When Ben Bernanke spoke of his “new transparency” in August, 2007, and then telegraphed lenient (or artificially low) interest rates for the foreseeable future, crude oil prices burst over a potential double top at $78.40 (July, 2006) and $78.77 (August, 2007) and started on its record run to $147 a barrel over the next 11 months.
Prior to this new “10%” philosophy, large moneyed interests had purchased shares of integrated oil refiners with oil in the ground rather than oil futures, or ADM or Cargill instead of grain futures. By buying the outright commodities, these customers of the large investment bank pushed up the prices on basic food and fuel commodities, which ultimately forced consumers to choose between getting to work and eating or paying mortgages on time. The end result was the existing recession. The large investment bank had effectively tried to make money on mortgages and on higher commodities prices. It was like trying to sheer the sheep it had eaten the night before as mutton. The government ended up needing to bail out this same bank.
Between the big collapse in oil prices over the second half of 2008 and again last week, the early results suggest that investors may have finally figured out what a poor investment oil really is. The investors who got out of oil last week were not getting back in this week. They seem to have bought back equities, but they seem to have decided that gold is the real play from here. With any luck, they will buy shares of integrated oil companies and leave oil futures alone. It will end up better for everyone.
Curiously enough, the recent blow-out in the contango may actually be making WTI, or Light Sweet crude relevant again. We may need a wide contango to help us get the crude oil contract back as the vibrant, dynamic hedge instrument it was for nearly a quarter of a century before being taken on as an “investment.” I agree that it has not been that since March, 2009 and possibly back to August, 2007. Nonetheless, I remember its best days, when refiners and producers used it regularly, in the days when it really was a hedge. If we can just get the “demon” out of it, exorcized, there is no reason to throw out the baby with the bath water. Position limits will help, but time itself seems to be working in its favor. Crude oil futures were designed as a hedge and not as an investment. Last week seems to have hammered that point home to investors now buying gold, instead.
http://ht.ly/1Lbra
-By Peter Beutel, Cameron Hanover