Ok NYMEX, Beginning To Notice The Fine Print?

Is it a building case of/for selling the news? Another substantial down day in the oil market brings the total slide to just more than 13% (since March 5). Hardly anything earth-shaking on its own, not with the WTI front month futures contract gaining an impressive 85% since the end of October. During those four and a half months, the news was all good (or so it seemed) beginning in the world of pharma (vaccines) and spreading to politics (elections and what that was going to mean for “stimulus”).

So, up 85% and then down 13% isn’t at all outside the realm of prudent profit-taking after such a huge, nearly-vertical run.

It’s easy to think about and make future impacts into whatever you want from them; vaccines end the pandemic, and then Uncle Sam comprehensively cleans up its mess writing enormous checks. But when all these things actually happen, no longer future tense, it’s understandable this tendency to take a little off the table to wait and see if the dreams really do match reality.

If this was all that’s going on WTI-wise, a price correction, then it might not be worth much more than passing notation (already did that last week). But our suspicions only deepen right at the front of the crude oil futures curve – to begin with, the front-end, one-month calendar spread refuses to backward-ate

The few pennies of reappearing contango right at the start could have been a technical artifact of the April 2021 contract becoming more and more illiquid as it neared expiration. With it off-the-board today, however, the one-month calendar spread remains (now between the May and June 2021 contracts).

And if that was all for the WTI curve, too, maybe it’d deserve barely a tiny bit more than a passing notation; it’s not.

What really gets my attention is as much the rest of the curve; just how far – really how fast – the backwardation has been drained right out of it. The selling is quick and violent in the front over the last week because of this flattening. Like yields and money curves, shape so often means as much or more in them as nominal price.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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