spread btwn cash and far out month 07

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TradingCoach
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spread btwn cash and far out month 07

Post by TradingCoach » Thu Dec 16, 2004 6:51 pm

In regards of crude oil....someone made this statement but I would deduce just the opposite.
"The spread between spot and 07 is $5.00, it was over $10.00 a few months ago. That indicates to me that maybe this down move is a temporary retracement."
fundies what is the deal?

Jake Carriker
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Post by Jake Carriker » Thu Dec 16, 2004 10:28 pm

You are correct, conventional wisdom is that a highly backwardated market is more bullish than a contango market (if the market is normal, and not inverted all the time). Crude oil is one that tends to be inverted alot.

Larger degrees of inversion can indicate high demand in the near month or spot market (as happens if there is a shortage of a commodity). Since CL is becoming less inverted (the spread is narrowing) that is not consistent with a shortage.

Jake

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Post by Ghostrider » Wed Dec 29, 2004 9:48 pm

TC -
I agree with the statement. Spot gets crushed in the near term (no JIT inventory issues), and the dec 07 CL doesn't get as crushed........
There's still a LT play in the distant futures, makes sense to me, lot more uncertainty in the non existant future.
If you want more, check out global CL supply and demand projections going out 10 years. I find a high probability of a shortage.

:P

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