What contango unwinding looks like…

While there has been much written about Crude Oil’s spike above $100 on the back of the news out of Libya, we haven’t seen much on what the spike has meant for the entire Crude “curve”, meaning the further out contract months (Crude has open interest all the way out to the December 2019 contract)

Crude Oil market in ContangoWhile most investors could care less about what the December 2013 Crude contract is doing, spread traders such as Emil Van Essen who bet on contango conditions persisting can see their month’s made or broken with moves such as we have seen recently.

For a refresher, a futures market in ‘contango’ is one in which further out contracts are more expensive than nearby contracts. Crude Oil was a poster child for Contango this time last week (see chart to the right)

Fast forward a week…and we see a much different looking Crude Oil Crude Oil futures curve breaking contangocurve, with the near months having spiked, while the back months have essentially stayed in the same place.

This is consistent with a supply shock type event where market participants believe there hasn’t been a secular shift in price dynamics affecting prices going out 8 years,  only a short term supply problem traders believe will affect prices in the next 3 to 6 months.

When looking at the past week’s price activity in another way (% gain/loss since last Thurs through last night), we can see quite clearly that the gains have been concentrated on the next 9 months futures contracts – with the further out months actually falling since the Libya news hit…. yet we don’t hear on the news how this is likely just a short term knee jerk reaction.

Crude Oil futures Libya gain

The chart above is exactly the kind of market spread traders betting on Contango don’t like to see, with a supply situation causing a spike up in the near months not matched by the further out months – and sure enough – spread trader Emil Van Essen has had a tough week, losing about -4% via a short back dated spread.  The silver lining – the same thing is likely to happen in reverse when and if prices reverse, with the nearer term contracts moving more (either up or down) than the further out contracts.  And… this is setting up nicely for the next round of trades…

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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