---------------
Is WTI becoming an ETF derivative?
At the current rate of expansion, Jakob expects the fund — operated out of California by former (unsuccessful) US Republican candidate for congress Nicholas Gerber — to hit 100,000 WTI futures contracts by Monday.
Just to compare, this time last year the fund held only 2,855 WTI futures.
At those levels the fund now controls some 20 per cent of the open interest on the April Nymex WTI contract, and 30 per cent of the same contract on the ICE exchange. As Jakob puts it:
-----------
On the implications of a widening WTI-Brent spread
The spread between the two main global oil benchmarks, West Texas Intermediate and Brent, is blowing out (again). And it’s been doing so for most of the month.
We’ve known for a long time, of course, that WTI futures are partial to underpricing distortions due to the contract’s over-reliance on the Cushing delivery point in Oklahoma. This has a tendency to clog up due to limited capacity and one-way crude flows, a phenomenon which has recently become known as ‘Cushing syndrome‘.
The trouble is, this time ’round, it looks increasingly like the widening might be as much to do with tightness in the physical Brent crude market (that made of Brent, Forties, Oseberg and Ekofisk crudes) as it is restricted capacity at Cushing.
Data from the ICE Futures Europe — home to the most liquid and popular Brent futures contract on the market — shows, for example, that four days ahead of expiry there are still more than 122,000 February contracts waiting to be rolled on, exchanged for physical or cash settled.
The physical market for Brent, however, remains tight — something which John Kemp at Reuters suggests could create a lucrative opportunity for those positioned accordingly.
As he explains on Wednesday:
It would be surprising if one or more large dealers and physical traders had not anticipated this tightness by establishing large long positions in the spreads or the underlying physical, tightening the market even further.
But even without a deliberate squeeze, recent investment inflows, some into nearby contracts rather than further along the curve, would probably have been enough to temporarily stretch the available liquidity and push the market into a steep backwardation.
But that’s not the only side-effect.
Pricing for product margins is being skewed too. The difference between the February RBOB (the benchmark gasoline blend used in the US) crack vs WTI, and the February RBOB crack vs Brent, for example, has hit a monumental $6, a figure which is very rarely seen at this time of year.
You can see the widening in the following chart from Petromatrix’s Olivier Jakob:
It’s all the more bizarre given gasoline stocks in the United States are still at multi-year highs. Favourable refining economics are hence not the reason for the widening.
No, as Jakob sums up, it’s more than likely all due to what’s going on in Brent:
… one of the main reasons why the RBOB/WTI crack has improved over the last 10 days is because of the collapse of WTI versus Brent. The RBOB crack to Brent has not improved at all and the contango on RBOB is increasing
No comments:
Post a Comment