Ruminations on Russia

This all gets a little geeky. Like the changes in temperature post from earlier today the graph showing WTI oil contracts moving from sustained backwardation in to sustained(?) contango all go to highlight that the world in which we are going to live is different from the world in which I got to be old and fat.

The actual post from Seeking Alpha is all about trading oil/product futures.  Which is not overly helpful unless you have physical crude to deliver. 

The infamous Eric Kraus of the Nikitsky Fund and the longest-term oil bull I know (unfortunately RSS-unfriendly) puts it well, and I paraphrase; in a tight market oil prices will tend to be volatile and warm, or otherwise weather, will have a noted impact.  He joins Boone Pickens Jnr as a $100/bbl man.

Oil Contango: Roll Yield Rewards:

Forward shifts in crude oil. Source: thestreet.com.

The above figure shows how oil future forward curves, for any given month, have evolved for oil futures during 2004-05, from the typical oil backwardation to contango curves. As Howard Simons puts it:

Each ribbon in the chart represents a forward curve beginning with the front month and ending with the December 2005 contract. The near months are on the left of the ribbon; the far months are on the right of the ribbon. As time goes forward and as price rises, the switch from a backwardated structure -- front months over the back -- switches to a deeper and deeper carry and a bona fide contango.

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