Nov 30. Oil futures curve signals concern about supply….

Crude oil Feb12 vs Feb 13

Gold Feb 12 vs Feb 13

–Fairly boring in US interest rates today. For the past two days tens began the day lower, but then rallied back.  Ten yr yield closed up 4 bps to 2.00%.  On the other hand, Japan (JGB) yield has gone from 94 bps to nearly 1.06% in a couple of weeks, which may seem like a small move but given Japan’s huge debt, even a small rise in rates adds heavily to the debt servicing burden.  Europe is still teetering on the edge…a Telegraph article the other day notes that money supply is contracting, with the implication of slower growth going forward.
–A friend of mine pointed out that the Dec/Feb gold roll collapsed from around -$3 to -$6 yesterday.  Not terribly surprising I suppose, as longs simply roll into the new contract rather than accept delivery.  One might think that banks would simply step in and provide the bid for GCZ1 and take delivery…but perhaps that activity falls under the black cloud of prop trading and derivative manipulation, and the banks certainly don’t need a negative spotlight given recent stock performance.  BAC touched 5.03, (yearly low), and GS, JPM look weak.  After the close S&P downgraded BofA, Citi and Goldman.
–Back to gold: I looked at Feb Gold one year spread GCG12/G13, which is somewhat volatile but had been in range from -$14 to -$10 before a plunge to -16.80 and back to -13.90 today.  Negative values mean that near contracts are less expensive than deferred, the normal situation, reflecting cost of carry, storage, insurance.  But what a difference in oil markets!  Iran rhetoric is heating up, and protesters stormed the UK embassy in Tehran.  Problems in Syria could also affect oil output, as could a multiple of other factors in that part of the world.  And those concerns are very real…reflected in the curves of both Crude Oil (CL) on NYMEX and Brent (CO) on ICE.  Feb12/Feb13 spread in both made NEW HIGHS, with near contracts much stronger and higher in price than deferred.  CLG2/CLG3 to POSITIVE 3.66 and COG2/COG3 at 6.04.  The difference in the shape of the gold curve versus oil highlights the juxtaposition of speculative jockeying versus true concern about obtaining critical energy supplies.  The moves toward backwardation in oil have been trending…the point is that there are all sorts of market signals flashing red.  My own guess is that nothing good happens in either european markets or in US stocks if an oil crisis is layered onto the quicksand of the current environment.  And while european bond rates edge higher, the US treasury market provides the depth and liquidity for massive capital inflows.

Posted on November 29, 2011 at 5:52 pm by alexmanzara · Permalink
In: Eurodollar Options

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