The advance in crude futures slowed a bit this week, but the positively sloping trend is clearly intact. Even Portugal's well publicized financial difficulties failed to trigger a sell off in crude or the euro. Energy markets continue to remain fearful of the potential supply disruptions in the Middle East and possibly even Nigeria pricing in a premium on these global risks.
We now have crude poised above $105. A figure it has not seen since 2008. A pull back below $100 is quite possible. However, strong support will come in at $97, should swing traders be fortunate enough to see this number enter their variable algorithmic formulas.
The high probability trade will be to add to long positions on any pull backs and be prepared to ride the volatility to a $117 take profit target.
Saturday, March 26, 2011
Sunday, March 20, 2011
Backwardated Crude Term Structures Evidence Continued Positivley Sloped Futures Trend
Japan's increased energy import needs along with turmoil in Libya, Bahrain, Saudi Arabia, and Yemen, will continue to support higher crude prices. Crude and products pulled back slightly this week on temporary demand destruction from Japan. The reality is that Japan will have to find ways to make up for the 10% of nuclear energy production destroyed by recent events.
Evidence of continued crude pricing strength can be seen in the term structure of Brent crude futures becoming completely backwardated. Even well supplied WTI crude futures have turned backwardated from December 2011 onward. Stronger evidence on higher crude prices are evident on year spreads for WTI and Brent. One month ago the spread was at a $3.51 contango. On Friday this spread has gone to a $1.95 backwardation.
Backwardated pricing will continue to bring crude out of storage and into the market on stronger demand. When near months on WTI futures follow Brent trend, pricing will become even more supported.
If this was not bad enough news for anyone seeking lower crude and refined product prices, Nigeria is scheduled to hold elections in April. The trend on these elections is for rebel troops to destroy pipelines, squeezing supply of valuable light sweet crude and adding additional upward pricing pressure.
Evidence of continued crude pricing strength can be seen in the term structure of Brent crude futures becoming completely backwardated. Even well supplied WTI crude futures have turned backwardated from December 2011 onward. Stronger evidence on higher crude prices are evident on year spreads for WTI and Brent. One month ago the spread was at a $3.51 contango. On Friday this spread has gone to a $1.95 backwardation.
Backwardated pricing will continue to bring crude out of storage and into the market on stronger demand. When near months on WTI futures follow Brent trend, pricing will become even more supported.
If this was not bad enough news for anyone seeking lower crude and refined product prices, Nigeria is scheduled to hold elections in April. The trend on these elections is for rebel troops to destroy pipelines, squeezing supply of valuable light sweet crude and adding additional upward pricing pressure.
Subscribe to:
Posts (Atom)