Oil contango

[scose-no-doubt]

Aug/Sep US Light spread been tightening over the last couple of days. Renminbi?

Anyone have any information on actual components of cost of carry for any commods or maybe just some learning materials showing pricing methods? I'd be much obliged.

 

[scose-no-doubt]

13:56 - PBOC says CNY has non basis for big appreciation but will have more flexability.

- CNY policy will have limited impact on global commodity prices

:Sources


Hmmmm.

Lol. Would have caught that breakout from the weekly down trend if I hadn't been looking at this shizen lol. Story of my trading life.

 

[scose-no-doubt]

How do you trade spread?

 

[Martinghoul]

How do you trade spread?

How do you mean? You buy one, sell the other...

Maybe this helps: http://www.investopedia.com/articles/07/contango_backwardation.asp

 

[scose-no-doubt]

I mean is there a way you can trade the view that a spread will widen or contract.

 

[meanreversion]

Sounds like a LTCM trading technique, good luck with it.

 

[scose-no-doubt]

LOL. I was just wondering. Good to know this stuff. Help you get to grips better with how the markets work.

 

[Martinghoul]

I mean is there a way you can trade the view that a spread will widen or contract.

Sure, you can... Ultimately, the spread is determined by the cost of carry, so the real trading of the spread is done by buying physical oil spot, selling the fwd and hiring a tanker to warehouse it. However, it can get rather technical due to the definition of the WTI contract. As I understand it, all these shenanigans are caused by the USO ETF that's too big for the mkt and is constrained to using the front contract. However, I ain't an expert.

 

[meanreversion]

Just don't moor the tanker anywhere near Somalia

 

[gooseman]

and the oil market is made up of many different players. for example those that can buy a couple of million barrels of oil, hire a tanker and sell forward and those that can't. plenty of arbitrage opportunities just very expensive to exploit

 

[scose-no-doubt]

Yeh I remember reading somewhere that the amount of tankers has increased x-fold ove rthe last number of years

 

[scose-no-doubt]

What do you guys trade?

 

[Martinghoul]

I don't touch anything as exciting as the oil mkt... Too much fun for yours truly.

 

[gooseman]

i have a go now and then. options tho.

 

[gooseman]

but recently it has been trading as a proxy for FX or S&P, not much to do with fundamentals. when i say recently i mean since there was too much liquidity in the markets from the central banks. just somewhere else to trade an asset.

 

[scose-no-doubt]

Spread widened to last week mid after the blow off. Dollar weak in the money market?

 

[gooseman]

moving into storm season now. worth keeping an eye on that. and the API/DOE data predictions for tongiht/tomorrow.

 

[Martinghoul]

Could be also that the balance sheet story is rearing its ugly head... It is half-year end, after all.

 

[scose-no-doubt]

@Goose - You know where I can get a calendar with this type of release?

@Martinghoul - What balance sheet story and why is half-year relevant. I was a tool this time last year so I don't know what you mean.

 

[gooseman]

they are weekly. API is tuesday night and DOE Wed afternoon (UK times) although next week it will be delayd a day die to US holiday.

LTRO tomorrow-can barely wait.....