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ISSUES....
Inside, confidential and off the record
Prices up
ENERGY PRICES HAVE RISEN QUITE SHARPLY, with WTI crude trading yet
again above $80/barrel and with the contangos continuing to narrow. Considering the latter statement first, note that the May’10/”red” May’11 contango continues to narrow appreciably, with the average contango for that period for both Brent and WTI coming in to $3.75 from $3.92. Recall that we said on Friday that the same period contango… the 2nd month year spread… was $6.25 only a few months ago. The market is either seeing a material lessening of the ownership of deferred futures by the “long only” funds that are the endowments, pension funds and other long term investors who had come to the commodity markets to diversify their holdings but now are liquidating their positions as they’ve grown weary of their losses, or we are seeing the front months being bid up relative to the deferreds because the market fears some impending disruption and wants to own nearer-by supplies… or both.
We get the sense that the term structure is on its way from contango to backwardation, and although we shall not buy into that thesis yet given the large number of days in a row in which the contango has narrowed, our interest is piqued. An eventual backwardation seems reasonable, and perhaps even possible… maybe even probable, if the present trends continue.
Moving on, and consistent with our discussion above regarding contango, Nobuo Tanaka, the head of the IEA, said over the weekend at an energy symposium in Tokyo that the world should prepare for another period of energy market volatility, and he minced few words. Mr. Tanaka said, when speaking to reports at the meeting rather than to the organisation itself, Volatility has receded compared to the rollercoaster of 2007 and 2008, but the market could easily become again more volatile once the world economy grows again and the supply tightens… The cheap energy age is over and we have to prepare for that in the government and private sector.
- Dennis Gartman/ The Gartman Letter 03 / 01 / 2010
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ISSUES.... 03/01/2010 / - Send Us Your Issues
ISSUES.... Inside, confidential and off the record
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