Risk on!

Its been 1 week since i had something in this blog, and this is not down to laziness i assure, nor is this down to absolute boredom in the market. Getting used to new sytem, new workflow and a new schedule is taking a little longer than expected. However, views on the market does not change and SFOT, like many others, are intrigued at the crazy turnaround in risk. Just 2 days ago, VIX was rallying above 30 and market sentiments were in risks off mode. Looks like Gold and a certain bullish Mr Buffet sent a signal to the rest of the market. Perhaps the big punters know something that i don't, as rates curve in US also steepened during the afternoon asset rally. A warning on the Fed from FT is worth reading, if you already haven't read it.

What does all these do for oil? For one, we have our weekly industry inventories data out this afternoon london time, ahead of the FOMC. API release late yesterday showed us a large draw in crude and a products build. More importantly, the draw is NOT in PADD5, which is rather bullish crude than anything. However, notice that the market has been more focused on products stocks recently than crude, which means cracks spreads will be a lead indicator for flat price, at least for a short while before FOMC. Moreover, the Brent contango remains very depressed, and by now, i am sure most market participants will know that Brent represents a better gauge for global crude inventories rather than WTI. In other words, the stock situation is still dire, though may not be as bad as 6 months ago, and SFOT suspects that beyond extraordinarily large numbers, crude stock will not be the main driver post DOEs. Refining margins have been under severe pressure of late, and SFOT will presume that refinery runs should go lower this week, particularly after cracks in distillates suffered terribly over the past few days. SFOT continues to be bearish distillates, and industry sources reveals that that part of the barrel is seeing no recovery in sight. One hint we can get is the freight rates of clean tankers from the baltic exchange, which continues to show real depressed rates in the products. These thoughts will be out of the window when it comes to this evening though, as everyone watches the Fed. For the short run, SFOT will watch Gold and the VIX as a gauge where the next move in Oil will be. Good luck

Brent refining margin
Brent dec09/dec10 spread

Baltic clean tanker index