Still not convinced of the rally.

Right, so equities rallied 7% yesterday, well done Obama and co for the ever complicated TALF and TARP plan. The feel good factor has spilled into the commodities market, in particular Oil. Just take a look at the 2 charts below. Comparing 1 week changes in the WTI curve. When funds and 'investors' piled their money into commodities, the back end rallied. This upmove in the past week has the same characteristic. So, my guess work is that macro funds, fast money and possibly even pension funds are putting their money to work in the long end. Of course we cannot rule out end user flows 2-3 years out and SFOT suspect its a combination of these 2 flows now that is creating a $10 rally in the long end of the curve the past week. It seems concensus that commodities market is the perfect place to play the reflation trade, however, with all these money piling in, it is again not real demand driving the market, but money.

With products leading the way, refining margins are looking healthy again. Whether this will induce refiners to start increasing runs is the key question going forward. Stocks in US are still as high as weeks ago, while demand has not picked up a bit. Inventories are similarly high in both Europe and Asia. This short covering rally in cracks may soon come back and haunt the refiners if there is no real demand for the finished goods. SFOT has a small bear position now and holds a tiny put spread in the prompt months as he does not like this rally but could not go against it full on right now. He is also short the prompt vs the back in crude and starting to do the same in middle distillates. He is fully aware this is against the trend and is prepared to reverse the trade when he is convinced this rally has legs.