Tracing the edge of a bullish regime, price and vol poised for next catalyst
July 23, 2024
Key Observations:
Backwardation in the NYM WTI crude oil futures curve is steepening, while realized volatility in its continuous rolling prompt futures contract is abnormally low relative to the market’s full 41-year history. Last week, these two figures averaged +16.5% (for M1/M24) and 21.0%, respectively.
Term structure was notably weaker and realized volatility notably higher seven months ago in mid December 2023: 4.0% and 37.9%, respectively.
Last week the M1-M2 timespread in the NYM WTI futures curve averaged $1.30 per barrel for the steepest weekly average backwardation since the week ending Oct. 13, 2023. The M1-M3 spread averaged $2.50, also highest since Oct. 13, 2023.
The M1-M24 price spread depicted in % terms at right averaged $11.57 per bbl last week, highest in three months. Long-dated prices are exhibiting signs of strengthening that are typically precursors for stronger performance by equity shares of producers. This signal foots with the greater confidence that commercial operators in oil and gas markets are showing through their hedge books relative to the dour attitude exhibited by speculative positioning by institutional investors.
As of Jul 19, the Risk Position Indicator (RPI) that we use to track commercial hedging through the ICE Brent crude oil market stood at 0.79 (0=weakest outlook, 1=most constructive), while the RPI for Institutional Investors was at 0.11. These figures a month ago were 0.90 and 0.06.
Source: NYM, Bloomberg, Blacklight Research.
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