Risk off everywhere but not in Oil

A risk off day here at mid-day london. Various bloggers have pointed out the downside risk so far this am, for eg, Gartman pointing out the triple top in EURJPY, Macroman on the eurusd put skew. EUR under pressure from low capital base banks getting hit big time, not to mention the 'stellar' performance of equities so far today in Europe. How does this translate into Oil? Given the financial aspect of this contract now, prices should be significantly lower. However, a surprise draw of 3.5mio bbl as reported by API yesterday is detering any major selloff, until the DOE report this afternoon. Consensus is for a build, which will be in line with the recent reports of refineries cutting runs. However, with the APIs reporting the draw in PADD 3, perhaps imports have also taken a nosedive and a big build may not materialize. Whatever the case, we need to look into the numbers with more caution, and SFOT would look at refinery utlization a litle more carefully, as refining margins seems to have strengthened with middle distillate cracks and Gasoline cracks leading the charge.

WTI refining margin

One thing of note, is this morning's news of a sabotage event on Iraq's export pipeline to Turkey. Any similar news last year would have sent timespread in Brent a lot stronger. However, it is not the case this time round, with timespreads in the prompt actually weakening since the news. Perhaps it is still a matter of too much floating storage globally. WTI prompt spreads, on the other hand, has strengthened a lot since early doors yesterday. This was before API numbers, and certainly before today's numbers in crude. Perhaps there is something the vast market knows nothing about but certain trade groups do. Whatever it is, SFOT has a sneaky feeling that we might be in for a Oil positive number. He is not short.

WTI prompt spread

Back!

It's a pleasure to be back in after a fantastic summer break. The trouble is, after too much fun, getting back into the market is tough. It is even tougher when market seems to be surprising many fellow bloggers consistently. For eg, the GBP, q3 earnings from the banks to Amazon.com. Therefore, as one might have expected, SFOT is treading this treacherous water very slowly and carefully. Any views he might have formed and has transformed into a trade of some sort in the past month is only being tried out rather than being a committed involvement. He shall attempt to write about his humble views in the coming days and weeks and again invites readers to share theirs, although it might be a slower process than he initially thought as he gets settled into his new role.
One of the the most amazing developement he has seen over the summer(other than the painful equity and GBP trade), has been the return of liquidity in the commodities market, in particular the oil sector. Readers will know SFOT indeed deals in this market by trade, and other markets by pure interest. However, he is in awe at how liquid the market in crude oil futures has become. Bid-ask spreads has come in to levels not seen since very early 2008 or 2007. This is clearly inviting speculators and it has indeed done so, with front month open interests back to the speculative height in 2008. This may not mean anything to most people in terms of p/l, however this would mean to potential specs in commodities, notably the CTA type funds to lever up again to participate in this market. Which leads to his first thoughts, should volatility in the low 30s be bought? Hopefully all had a great year, and better things to come ahead.