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Changing rollover dates for CL
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Changing rollover dates for CL

  #51 (permalink)
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Thanks Sands,

My requirements for the volume rollover dates is because I have historical data that I am wishing to test with my artificial intelligence fully automated trading system.

I haven't been able to find the past historical official rollover dates for CL on cme's website.

Volume seems to be the best thing like you said as my system is an intraday trading strategy.

Any help with the volume rollover dates would be very helpful to me.

Thanks

David

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  #52 (permalink)
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Impact of rollover cost on crude oil long only funds

Just for fun I have compared backadjusted and merged non-adjusted charts for WTI and Brent futures. The outcome is more than astonishing.


Suppose that you were a long only oil fund and that you hedged your exposure from investors by going loing oil futures. I am looking at the period from December 2008 to April 2011. I further assume that the long position is rolled every month (which is a not realistic assumption, as long only funds do not need to rollover their positions every month).


A long only fund buying WTI futures via NYMEX would have purchased

-> the February 2009 contract at the low point of 33.55 in December 2008
-> sold the May 2011 contract at the high point of 114.83 in April 2011
-> the profit before rollover cost would have been 81.38 points
-> deduct 26.41 points in rollover losses and you are down to 54.97 points

A long only fund buying Brent futures via ICE would have purchased

-> the February 2009 contract at the low point of 38.10 in December 2008
-> sold the May 2011 contract at the high point of 126.91 in April 2011
-> the profit before rollover cost would have been 88.81 points
-> add 1.38 points in rollover gains and you are up to 89.76 points

Gain for investors that bought shares of a long only oil fund that was hedged via WTI futures / NYMEX: 54.97 points
Gain for investors that bought shares of a long only oil fund that was hedged via Brent futures / ICE: 89.76 points

This means that the Cushing contango cost the long only funds that hedged via NYMEX about 40% of the total gain for that period.

And this is not all. The Cushing contango also had a negative impact during the following period from April 2011 until now. Why the hell would any oil fund or hedger go to NYMEX to acquire a long position?


Or am I mistaken?


Weekly charts, backadjusted and non-backadjusted attached below.


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See how this chart is distorted by the permanent contango, if you compare it to the three other charts!


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  #53 (permalink)
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Fat Tails View Post
Just for fun I have compared backadjusted and merged non-adjusted charts for WTI and Brent futures. The outcome is more than astonishing.


Suppose that you were a long only oil fund and that you hedged your exposure from investors by going loing oil futures. I am looking at the period from December 2008 to April 2011. I further assume that the long position is rolled every month (which is a not realistic assumption, as long only funds do not need to rollover their positions every month).


A long only fund buying WTI futures via NYMEX would have purchased

-> the February 2009 contract at the low point of 33.55 in December 2008
-> sold the May 2011 contract at the high point of 114.83 in April 2011
-> the profit before rollover cost would have been 81.38 points
-> deduct 26.41 points in rollover losses and you are down to 54.97 points

A long only fund buying Brent futures via ICE would have purchased

-> the February 2009 contract at the low point of 38.10 in December 2008
-> sold the May 2011 contract at the high point of 126.91 in April 2011
-> the profit before rollover cost would have been 88.81 points
-> add 1.38 points in rollover gains and you are up to 89.76 points

Gain for investors that bought shares of a long only oil fund that was hedged via WTI futures / NYMEX: 54.97 points
Gain for investors that bought shares of a long only oil fund that was hedged via Brent futures / ICE: 89.76 points

This means that the Cushing contango cost the long only funds that hedged via NYMEX about 40% of the total gain for that period.

And this is not all. The Cushing contango also had a negative impact during the following period from April 2011 until now. Why the hell would any oil fund or hedger go to NYMEX to acquire a long position?


Or am I mistaken?


Weekly charts, backadjusted and non-backadjusted attached below.


Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


See how this chart is distorted by the permanent contango, if you compare it to the three other charts!


Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).

Great work.

Would be interesting to have an industry practitioner to speak about this.

I think some try to use spreads to "hedge" the outright rollover costs.

And off course others buy the physical via tankers (to store) and other storage facilities.

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  #54 (permalink)
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Thank you Fat Tails for your input, discussion and knowledge regarding this interesting topic.

In doing more research on the topic of Contango and Backwardation, I came across this document from CME

https://www.cmegroup.com/trading/agricultural/files/an-update-on-empirical-relationships-in-the-commodity-futures-markets.pdf

This document discusses many of the items Fat Tails brings up in relation to holding and rolling over Futures contracts for Oil. This document has studied various futures rollover costs and other associated futures data aspects over a large period of time (1985 through 2013)

One of the notable quotes is on page 4:

"Further, in a 1998 Journal of Alternative Investments article by Mark Anson, one finds that from 1985 through 1997, roll yields accounted for essentially all of the futures-only returns in an investment indexed to the petroleum-complex-heavy (S&P) Goldman Sachs Commodity Index, as shown in Figure 2."

It is also interesting to note, they explain the correlations of Contango and Backwardation in relation to the amount of surplus oil, rather than price of the oil.

Another potentially worthy piece of information for oil futures traders is the relationship between the price of oil and a) the heating oil crack spread, and b) baltic shipping indices. Which they explain to be potential bellweathers to the price of oil. This data is located on page 22:

"One interesting historical observation regarding 2008 is that both the heating oil crack spread and the Baltic shipping indices started peaking in late-May-to-late-July of that year, so alert futures traders did have a number of warning signs that a fundamental source of demand for oil appeared to be diminishing in short order. And indeed according to CFTC data, cited by JP Morgan researchers, market participants that were classified as “managed money” and “swap dealers” did reduce their positions in the oil market in the months preceding the July 2008 peak"

I hope others find this beneficial.

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  #55 (permalink)
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Another interesting piece of data.

It is possible, as Fat Tails eluded to, that one Oil futures market (WTI) can be in Contango, while another market (Brent) can simultaneously be in Backwardation. This raises some interesting questions as to the details of this aspect, and could/should be used by the investor for selecting which market they invest in when holding for periods of time requiring rollover, or there could be a play on the spread between these two contracts.

WTI in Contango
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Brent in Backwardation for same time period
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  #56 (permalink)
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kayaktri View Post
Another interesting piece of data.

It is possible, as Fat Tails eluded to, that one Oil futures market (WTI) can be in Contango, while another market (Brent) can simultaneously be in Backwardation. This raises some interesting questions as to the details of this aspect, and could/should be used by the investor for selecting which market they invest in when holding for periods of time requiring rollover, or there could be a play on the spread between these two contracts.

WTI in Contango
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Brent in Backwardation for same time period
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One aspect of the WTI Brent spread is definitely:

Europe (economy) vs US (economy)
and
(nothing ) vs new supply

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  #57 (permalink)
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I think that the real problem is the limited storage in Cushing. You cannot build a world class comodities contract on delivery fixed at a lonely pipeline depot somewhere in the pampas. The Cushing prices are somewhat disconnected from the world markets. The main problem is that oil is flowing into Cushing faster than it is flowing out. The local surplus has kept the prices of WTI well below Brent Crude, which has become the international benchmark.

The question was all about debottlenecking Cushing. Originally the seabound pipeline capacity was insufficient. This made physical arbitrage between Cushing and international (sea port) price impossible. The consequences were

-> that the Cushing oil depot was always full
-> that prices for physical delivery in Cushing were depressed
-> which in turn depressed the price of the front month contract and explains the artificial contango between front month and back months

This situation made it impossible for long only funds to roll their positions at a moderate cost, as shown via the charts above.

It seems that the situation has changed (I have made a little research):

(1) The original Seaway pipeline reversed direction in 2012 (originally Cushing had been supplied from the Gulf Coast), then transporting 180,000 bbl/day.
(2) In 2013 the capacity of the pipeline was increased to 400,000 bbl/day.
(3) A twin pipeline has been completed and has delivered the first batches of crude to Jones Creek on December 21, 2014. This increases the total capacity to approximately 850,000 bbl/day.
(4) Also in 2014, the Cushing-Marketlink project of the KeyStone pipeline was completed. This pipeline links Cushing to Liberty Country and is capable of transporting 700,000 bbl/day.

This means that compared to 2012, there are now 3 additional pipelines with a total capacity of about 1,550,000 bbl/day (80 million mt/year). With the debottlenecking of Cushing, there should be

-> a significant reduction in the spread between Brent Crude and WTI
-> a reduction of the permanent high contango as a consequence of reduced spot prices

And indeed this is reflected in the decline of the differential Brent vs. WTI.


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However, the damage to long only funds over the years 2008 - 2014 has been done. Cushing was disconnected from the world markets such that the local oversupply could not be physically hedged.

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  #58 (permalink)
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Fat Tails View Post
It seems that the situation has changed (I have made a little research):

(1) The original Seaway pipeline reversed direction in 2012 (originally Cushing had been supplied from the Gulf Coast), then transporting 180,000 bbl/day.
(2) In 2013 the capacity of the pipeline was increased to 400,000 bbl/day.
(3) A twin pipeline has been completed and has delivered the first batches of crude to Jones Creek on December 21, 2014. This increases the total capacity to approximately 850,000 bbl/day.
(4) Also in 2014, the Cushing-Marketlink project of the KeyStone pipeline was completed. This pipeline links Cushing to Liberty Country and is capable of transporting 700,000 bbl/day.

Well, you are right about the bottleneck of Cushing, but the key question here is how those pipelines capacities are really used. The answer - usage vary substantially over different periods of time. As well, unless the US lifts export ban, pumping crude to PADD3 or any other districts doesn't make much sense even with slightly higher products exports. It's like when you take a $100 bill from one pocket and put it in another one. Yes, a year ago the Keystone Marketlink project was a hope for many. But over the last 12 month markets realized that pumping crude from one place to another wasn't a game changer at all.


Last edited by Alphachase; February 4th, 2015 at 01:40 PM.
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