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Front Crude Spreads / Cushing gets Interesting?
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Front Crude Spreads / Cushing gets Interesting?

  #1 (permalink)
Market Wizard
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Front Crude Spreads / Cushing gets Interesting?

Obviously Aug-Sep and Sep-Oct have moved strongly the last week… and this isn’t the first time this has happened … spreads were just as wide at this time last year…

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But look at how the Front Butterflies are behaving very differently…

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Even when crude spreads were strong last year, the butterflies were all in contango, meaning that spreads were stronger down the curve than they were in the front. For the first time in a year, crude spreads are strongest at the front of the curve.

Cash (August) WTI is trading $4 over September. Since the Marketlink pipeline from Cushing to the Gulf opened in January crude stocks have dropped 20 million barrels at Cushing and are now the lowest since 2008. What does all this mean? Fundamentals seem to be shifting...


Last edited by SMCJB; July 25th, 2014 at 05:34 PM.
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Repost your images, they did not come through.

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  #4 (permalink)
Market Wizard
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Wierd they showed up this computer, but not others.
Reposted now.

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I noticed it also last week

I even needed help from @Fattails for an indicator to chart the spread
CL is cheaper for september delivery than august delivery

possible explanations ?
- shortage near term (unlikely
- roll-over squeez, someone was short in august had to cover and sell september ? (skewing the time value
- expectation price will drop in the future ?
(discovery of big oil field ?
(increased production ?

I was trying to understand it also

I couldn't come up with a valid explanation
and i couldn't conclude that trading the spread was a no risk business

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  #6 (permalink)
Market Wizard
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Updated.
Still 2-3 days until CLU4 expiry. (Wed 20th)

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My guess is that it's primarily driven by the need for physical barrels. That would imply it will tank in Sept or Oct unless we get ridiculous quantities of condensate exports or refinery maintenance.

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Trading Apprentice
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Well, that didn't take long. Guess there wasn't as much demand for physical barrels as the spread implied. Heh.

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Market Wizard
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Sep-Oct spread has had a $1 range today already ($1.83-$2.85 vs $2.66 settle).
Sep-Oct-Nov butterfly has had a $0.67 range!
Sep expires tomorrow.

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"What? We might actually end up owning real oil? Oh no! No one told me that! Quick, get out now..."



Would be pretty late for an ETF-driven futures roll.

That said, at $2.05, U/V is still $0.70 above the levels trading a couple of days ago. Think I'll grab the popcorn and watch the movie. No need to get run over by this train...

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