FOMC meeting holding back risk taking....commodities not spared

Its hotting up. S&P closed well below 900. Volume is apparently not very high and one doubt much will happen before FOMC. Vols in all asset classes are bid up into FOMC meeting tomorrow. While commodity complex had a rough day yesterday, Oil and Gold stands out most. Given they have been clearly the leader in the global reflation play that started back in March, it make sense for them to lose signicantly on any unwind. However, the move down is hardly convincing just yet to load up on a bigger play, at least not before FOMC tomorrow. Crude oil has been a particular point of discussion. SFOT came across several technical pieces, coming from experts and novices alike, that crude(WTI) is due for a correction below $60 due to increased contango and technicals. While this may be true, a bigger correction would need stopping out of lengths. However, since most of the length were in the longer part of the curve, eg Z10 and Z11, and these has only lost only half the value of the front months over the past few days, there is probably hardly any case for a bigger selloff, yet.

Back into middle distillates, Egypt's 100kb/day Midor refinery had a serious fire and had to import gasoil from europe. It seems this is a bigger problem than originally thought and is lending a little strength to gasoil in the prompt. Also, part of the middle distillate component is Jet fuel, and the prices of Jet in Europe have seemed to stabilized a little higher across the curve, with the differential staying in the 50s. Readers will know that SFOT has been a big watcher of this part of the barrel, and if the recovery starts here, perhaps there is hope for proper demand driven oil price recovery. At the moment, there is nothing to point to any recovery, except traders playing the cash and carry trade, waiting for the flip to backwardation that may take a long time to come....