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Crude Disconnects As European Close Brings Margin Calls
The last month has been a violent one for stock and bond investors but a look at the forward curve for Crude Oil also tells a story of hugely volatile moves. Oil has shifted from contango to backwardation in the last month but it is today's dramatically disconnected move that has many scratching their heads. As we approached the European close today, oil started to rally and rally fast. Initial rumors of ECB printing were quickly dismissed as gold and silver slid back but crude kept going - all on its own. After being perfectly in sync with BTPs for the last few days, we wonder if traders were short oil as their hedge against European long risk exposures and the LCH margin call forced liquidations and unwinds - idiosyncratically cracking the oil market back over $97.50.
The current, 1 week ago, and 1 month ago curves for Crude Oil...
Oil has dislocated notably from the rest of the commodity complex in the last hour or so.
The idiosyncratic nature of this move (when risk is not moving anywhere else) strongly suggests some form of liquidation or large unwind and the close of European markets is when the margin calls hit specifically for BTPs (almost double the capital needed). Short Oil does make some sense as a risk hedge given both its FX translation hedge against Europe as well as global macro slant (ignoring simply its high correlation) and so while many will point to a ripping WTI as signs of strength today, we suspect it is purely technical.
or more worryingly (less likely), someone knows something about the Israel-Iran situation that none of us do?
Charts: Bloomberg
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war
Green.
My first thought.
I am cynical, but Gotta load up those positions before pulling the trigger. I am sure they are done picking through the MF Global positions/accounts, so this is round two at the buffet.
But I am a cynic ...
Regards,
Cooter
You will know war is on the horizon when crude and gold skyrocket. Gold just sold off. No war just yet.
you can't just start a war in secret these days
Need another 9-11 pretty soon here, things are getting very risky for banksters.
can't start a war in secret but you sure can hide the reasons
Agreed. I got long oil the minute the "peaceful" Arab Spring began -- eventually the rest of the oil market caught on... the latest "illogical" increase over the past week smells similar, but I haven't committed like I did back in January because I thought a new credit collapse was imminent and would take oil with it!
I should not have underestimated the gullibility of markets with regard to European promises/lies.
No no no. Its all becaue the North Slope and Prudoe Bay are presently getting annhilated by a freak Blizzicane.
Yes. With so many problems that can not be possibly solved, everything will be resolved by the only "other" means of negociation.
Folks need to look at the last 10 out of 10 times ...war is bearish for oil prices I don't care where the war is. See Gulf War 1,2,Iraq,etc ad nauseum. The US pulling out of Iraq will have a bigger impact to oil prices (demand down) than Israel and Iran lobbing (conventional!) missiles at each other.
Crude re-connects you meant to write; oil should have remained in the $120 range plus, but alas like all financial fuckery there was a synthetic reprieve which will end as Italian bonds cause massive blowback. (Let's not forgot the brewing Iran conflict which leverages so many econ factors and causes vital distraction, etc.)
Gold and silver will re-connect as $2,400 and $50 respectically as SP500 settles into 850 range.
IMNSHO
War! huh-yeah
What is it good for?
Absolutely nothing
Uh-huh
War! huh-yeah
What is it good for?
Absolutely nothing
Say it again y'all
War! huh good God
What is it good for?
Absolutely nothing
Listen to me?
Ohhh? War! I despise
Because it means destruction?
Of innocent lives
War means tears
to thousands of mothers eyes
When their sons go to fight
and lose their lives
I said - War! Huh Good God y'all
What is it good for?
Absolutely nothing
Say it again
War! Whoa, Lord ...
What is it good for
Absolutely nothing
Listen to me?
no chance of a war......israel has been lobbying hard both here and in the u.k. for support for a preemptive strike.......from the u.s.'s p.o.v. ground forces r scheduled 2 leave iraq at year end......doubtful they will do a u turn and b redeployed to protect israel since a shit storm there would erupt.......plus stratfor shows no new deployments of military assets moving 2 the middle east......more importantly next yr. is an election yr. and no standing president wants 2 move into a new conflict with muddy reasons during tht period.........the u.k. on the other hand simply doesn't have enough resources 2 go it alone with israel......an oh yeah i believe they are just beginning 2 enjoy all they sweet libyan oil tht's now flowing.......europe has no reason 2 help stir up a shit-o-cane of trouble with mena countries.......so in short.....nothing but "no thanks" 2 aiding israel in a new military campaign
I'd postulate that this move most likely late too Israel, Iran, and the release of the IAEA report. however, the IEA's World Energy Outlook 2011 was also released today. going through it with a fine tooth comb reveals that oil supply over the next few years will be incredibly tight.
It isn't just crude it's pretty much the GSCI index. They all jumped.
or someone knows something about some war about to begin...
I believe war is at least a couple of months away as the appearance of letting UN sanctions run their course has to be maintained at all cost.
I also suspect it'll be a greatly disappointing war in terms of duration and scope, but that it will be a disruptive event for Iranian and possibly other regional oil production and sales. So expect a spike to 150-160 around 60 days from now, maybe going up a bit more once the festivities begin, and then down to 120ish before collapsing on lack of demand from China, Europe/Atlantis, etc.
At some point, we'll have to figure out to do with all the boots currently in Iraq. Hmmmmm........
I am no longer sure I have a sane grasp of the world...
Its like an episode of the Twilight Zone.
Confirmation police here. yup. Insane.
Carry on.
very bullish
peak cheap oil is in the rear view mirror
Peak oil is macro. I agree, but it has little, if anything, to do with moves like this.
Regards,
Cooter
Yep. War rumors, supply chain disturbance, maybe even onset of an inflation wave coming.
I think the reason for the move is that Europe will print their way out of Hell. Angie is saying a "New Europe is needed".
peak cheap oil was 30 or 40 years ago.
If by "peak" you mean "the end of," then you clearly don't know wtf the word peak means
Bunkerbuster bombs away...
"Short oil as a hedge against European long risk exposures..."
What a ridiculously arcane trade. Playing games with peoples' wealth. Their clients should be mad as hell. Is anything TANGIBLE really being produced here? This is not even "speculation" - it's gambling, pure and simple. Or is the entire correlated "investment" world now one giant casino?
Place your bets.
Finance has been a parasite since the time of Venice.
Its just that technology and cheap energy has enabled us to succeed in spite of it.
With the population explosion and death of cheap energy, a reckoning is near.
The question is will the masses realise the few cannot be allowed to consume for the many, or will the few manage to "amend" population levels?
bingo...nail/head
Would the few even be happy without a many under their heel? I mean, somebody has to build their BMWs and cut their grass.
in a nutshell, and don't forget things will be much worse for the bastards who benefit have lied about it for so long
Yes, and there can't be a recovery(whatever that is to you) while the non-productive practice their orgy of skim/rape on any who try to produce.
In other words, great swaths of these "genius traders" have to collapse before a recovery(whatever that is to you) will come to pass.
capital will not form in a system that skims most of it for non-productive trading.
Yes War. It's time for Wall Street to divert attention from a failed economic ponzi scheme (promises) to war.
When you conquer a creditor, its double pay day; debts annulled and resources confiscated.
Just ask Hitler.
Regards,
Cooter
Post WWII foreign policy has been dictated by the international banking cartel under the guise of the military industrial complex. This worked reasonably well until the political promises and credits overwhelmed the system. Now, the system is resetting and the cartel is losing control. What emerges in its place is up for debate and the stakeholders are crowding the tables. Rest assurred, however, that the financiers will not give up easily.
Bernanke must be shitting bricks now.
No leeway to prime the pumps now.
Sponge Ben Squarepants?
Regards,
Cooter
Agreed. Sell with both hands. While the short unwind as stated for today's move off of the bottom makes perfect sense, WTI anywhere near this price has all to do with the EnP stocks the criminal syndicate now has in inventory...and are very much for sale today. Step right up greater fools.
Wide scales...but sell WTI with conviction.
up over $3 in less than 2 hours...merry fuckin christmas...I guess.
Peak-oilers must be weeping out of euphoria, thinking their doomer crackpot theories are confirmed by reality.
But this won't last.
Gold <$1200 and WTI<$70 in less than three months. It is time for these bubbles to pop. The slaughterhouse truck is fully charged and ready for departure.
Poppin' Bubbles, eh? You pederast you.
Rubbish. But even if what you say comes to pass, three months is a LONG time: plenty of time to be long oil & gold first...
I love the smell of burnt hamy in the morning. Another sarcastic troll who's efforts are completely missed by most.
LFP is that you?
uh..production figures show that oil DID peak, C&C in 2006, all liquids in '08.
possibly 2005 (for Saudi and the traditional stuff)
http://www.theoildrum.com/node/5177
I've heard ramping up tar stands full tilt will have the equivalent eroei cost of around 200
the cheap shit is long gone. Too bad the debt economy keeps pretending
It looks like italian yields are falling ebb must be intervening.
I would make the bet that someone with a printing press is about to come to the rescue of the bankers...again. Don't expect an announcement. They are just going to do it.
Probably someone's got the inside on the Iran thing or trying to play it anyway. They have been as of lately anyway.
"speculators" are blamed for high gas prices.
people that trade in a market in which they never will either produce anything or take delivery are speculating on others production, so yeah they take their share of the blame.
u dont think the kind souls that bought the SP reserves are gonna take a hit on those purchase now do you
After the PIIGS, Japan and US.
That's an easy one Tyler.
Iran strike is a given. Just a matter of time and usual public brain wash operation...
Oil will keep well bid and will decorrelate from other commodities / risky assets and crosses
Is it just my browser? Up until today, Yahoo finance's scrolling updates (15 min late) is absent today.
Something smells here. Any better suggestions>?
Thanks
They don't want people getting skeered with too much information today .... :)
Or it could just be that diesel is incredibly tight at the moment
FWIW two days ago I heard on BBC gas in the US was going up to $4 a gallon this winter because US refiners were planning to make diesel for shipment to South America.
So, diesel may be tight somewhere.
Inventory numbers caused short covering which fed on itself.
Weird as I was looking at this as well today. I have two thoughts
1) the algo's program to reacha certain level. I get about 40 (uco) I have seen this before in other securities. we start low go high to the program, then dump. seen a lot on tlt
2) I believe it is roll over time for the passive funds, so the boys can ramp up, and know there will be a buyer so they can then drop
Hmm! Crack Spread is dropping, Gas price in US are separating from crude. CDS no longer a hedge against owning sovereigns. Something seems to be driving oil not related to demand
$220 oil is what Nomura still predicting. More likely every day.
Angela Merkle has (another) plan!
Save us Angie! Save us!
http://globaleconomicanalysis.blogspot.com/2011/11/margin-call-of-4-5-bi...
I find it very interesting that gas prices are not moving on this oil move.
Riddle me this ...
So ... what is happening there? Maybe some new, as of yet, unannounced, tax break or incentive/subsidy to the oil companies via Fed stimulus to keep the peeps out there happy in light of all the OWS kind of craziness ... hmmmm ... something don't add up there Batman!
If so, it's just a wash, as taxpayers will pay for it in the long run, just not every day at the pump.
Hmmmmmm.....
Just take a look at heating oil and propane. Crazy. Long cold winter in the Northeast.
Could be a combination of margin calls and Israel-Iran issues. Algos would read the headlines, see the spike (as unwinding occurs), and bids it up.
and oil inventories down...but enough to spark a swing like we saw??
In combination with the other variables, yes.
Don't forget...the dollar is up strongly, Q3 GDP being revised downward.
the weird thing is I've been seeing gas prices actually drop some in the last week.
US inventories report today was very bullish. "Total commercial petroleum inventories decreased by 15.3 million barrels last week."
Also... Distillate fuel inventories decreased by 6.0 mln barrels last week and are in the lower limit of the avg range for this time of year.
Cars are being driven less: over the last four weeks, motor gasoline product supplied has averaged about 8.6 mln bpd, down by 5.6 percent from the same period last year.
But more demand from truckers: distillate fuel product supplied has averaged nearly 4.3 mln bpd over the last four weeks, up by 3.9 percent from the same period last year.
Total commercial petroleum inventories decreased 15.3 million barrels last week according to the EIA report that sparked the spike. For anyone that follows this stuff, such as me, that is a HUGE decrease in inventories. The gap between US prices and world prices may start closing fast.
If we attack Iran all bets are off. Those MF'ers are el'loco. They make MS 13 look like a disorganized school yard gang.
Forget war/fundementals/stock levels etc . Last month at expiry of ICE Brent and Gasoil(Heatingoil) prices were squeezed the same game is in play by the Traders/Banks --dont get in their way.
Boinnnnnnnnng!
Lindsey Williams.
WTI is only produced at a few hundred K per day now. It's insignificant compared to the other blends like Brent and Urals and Oman.
I have come to realize that there is a desperate desire to think this matter is trading relevant and all things must be thought of in that context.
It's not. It is produced, bought/sold and burned -- and the people involved need not ever look at NYMEX. This is about life, and more specifically, death. It's not about trading.
Oil is civilization's lifeblood, and anemia has set in.
On the WAR comments ... looks like there were some battle groups in the Arabian Sea, so there's presence there. Of course, looks like we are also placed for something on the Pacific Rim ... so who knows ... I don't pretend to be an expert on these things, but ships = might and might is always right in these issues, I know that :)
http://web.stratfor.com/images/northamerica/map/Naval_Update_11_02_11_800.jpg
Thanks to ZH for pointing out this site in the past, BTW. If the link does not connect, then go to stratfor.com and check out the latest deployment update.
DOW chart reveals very overextended price action and another Wile E Coyote scenario...
http://stockmarket618.files.wordpress.com/2011/11/2011-11-09_dow_4_zb.png
IRAN
Inventory reports are bullshit that nobody followed until speculators took over the oil market. Inventory is dropping because producers are allowing inventories to fall from record levels while not producing replacement inventory because demand is cratering.
If I know I only need 80 trinkets next year, because everything shows I'll probably sell less than the 90 I sold this year, while producing 120 during the year. I will probably produce 60 units to be safe, but draw on my overproduced inventory to make up the difference. If you only focus on the inventory it will make it look like I am doing booming business when in reality my business is dropping by a significant amount.
Speculators are two bit criminals exploiting hand picked statistics. Dropping them like garbage from the tops of buildings is the only solution to the insanity of the market.