Buying Dec'15 Crude Futures
Selling Dec'16 Crude Futures
* Spread done@ 5.45, target is 3.69 for a profit on half the position *
We are near historically depressed levels of the 12 month crude oil calendar spread. In the near term, there is a risk that storage becomes scarce, which would force producers into "shutdown economics," as Goldman Sachs terms it. This risk would be highest in the front end of the curve but buying the Dec'15 would hopefully bypass this pressure. Producers are reasonably well hedged in 2015 but will face increase pressure to lock in any margins they have left in 2016, which would put downward pressure on the back-end of the curve.
Currently, a physical trader could sell the Dec'16 future @ 63.70, buy crude in the spot market @ 49.50 and store it for delivery less than two years out for a risk free return of over 29% minus storage costs. This is why you will see tanker rates bid as Vitol, Trafigura et al re-hash the same strategies used in 2008 and 2009 to capitalize on the last collapse.
Selling Dec'16 Crude Futures
* Spread done@ 5.45, target is 3.69 for a profit on half the position *
We are near historically depressed levels of the 12 month crude oil calendar spread. In the near term, there is a risk that storage becomes scarce, which would force producers into "shutdown economics," as Goldman Sachs terms it. This risk would be highest in the front end of the curve but buying the Dec'15 would hopefully bypass this pressure. Producers are reasonably well hedged in 2015 but will face increase pressure to lock in any margins they have left in 2016, which would put downward pressure on the back-end of the curve.
Currently, a physical trader could sell the Dec'16 future @ 63.70, buy crude in the spot market @ 49.50 and store it for delivery less than two years out for a risk free return of over 29% minus storage costs. This is why you will see tanker rates bid as Vitol, Trafigura et al re-hash the same strategies used in 2008 and 2009 to capitalize on the last collapse.