Backwardation is back

Backwardation is back: Oil futures investing has gotten very, very interesting again, Oil will hit $100 but probably not in 2007: Pickens, Billions more dollars headed for commodities, What`s the best-performing commodity over the past year? Not oil or gold ... but lead, Commodities bull expected to run further
Backwardation is back: Oil futures investing has gotten very, very interesting again
From Hardassetsinvestor.com: Yes, oil is expensive. Yes, we've been flirting with $80 a barrel. And yes, the market continues to be a mess, with OPEC playing fast and loose with its own rules and political turmoil a steady rumble of uncertainty.

For oil investors, however, all of that fades compared with a technical development in the markets that we started reporting on back in August: backwardation is back. And increasingly, it's back in a very big way.

In August, we got all excited because the near-term contracts (October and November) were just coming into backwardation, with the front month yielding a whopping 32 basis points on a monthly roll. That marginal positive yield reversed more than two years of contango markets, and appeared to be cause for celebration.

But if we were partying then, look out now.

Let's take a look at the NYMEX Light Sweet contract for yesterday:



Expiration


Price Per Barrel, $US

October


80.55

November


79.33

December


78.10

January


77.25

February


76.55

March


76.05


Holy suspenders batman, that'll keep your pants up.

Rolling into the next month now offers you a 1.54% return on your investment, for a single month's roll. Multiply that by a year and you're looking at a 20.12% backwardation yield on a crude oil futures investment. 20.12%.

What does that mean? It means that, all things being equal (which, admittedly, they never are), a rolling investment in oil futures will net 20% even if oil stays flat. Alternatively, if oil falls 20% this year ... from $80/barrel to $64/barrel ... you'll break even.

But wait, it gets better. Full article: Source

Oil will hit $100 but probably not in 2007: Pickens
From Reuters.com: Oil will continue to trend higher after hitting fresh highs over $82 a barrel but is unlikely to puncture the $100 level this year, Texas oilman and investor T. Boone Pickens said on Wednesday. "You'll hit $100 -- I don't think you'll hit $100 this year unless you have some kind of geopolitical event that causes that to happen, but you're going to get to $100 at some point," Pickens told Reuters in New York.

..."The trend is up, and if your supplies are 85 million barrels per day (bpd) globally, and you look at what demand is predicted to be for the fourth quarter, it is 88 million bpd," Pickens said. Full article: Source

Billions more dollars headed for commodities
From Reuters.com: Money is still flooding into commodities investments to diversify portfolios despite financial market turmoil, and more pension funds are looking at commodity investments, especially in southern Europe. "I would expect to see several billion dollars of inflows by the end of the year as new funds consider commodities and implement (investment) programmes in commodities," said Daniel Raab, managing director of AIG Financial Products. Full article: Source

What`s the best-performing commodity over the past year? Not oil or gold ... but lead
From Hardassetsinvestor.com: ...So why the high prices? It’s the volatility of supply.

Indeed, in the lead market, it’s been a rocky road of late. In March, Ivernia Inc. (TSX:IVW) stopped production in a mine in Australia due to a lead poisoning investigation. (Ivernia has about 3% of global mined output.) In July, an explosion at a smelter in Missouri run by Doe Run Resources, the second-largest lead refiner in the world, further reduced production. The plant was up and running by August, but it will take a while to make up for the downtime. Later in July, lead hit an all-time record of $3,500 a ton on the London Metal Exchange, as the LME's lead stockpiles dried up. It was the classic economic model: High demand + low supply = high prices. But there's little doubt that speculation was involved in pushing the price up to that level, as just two weeks later (August 6), lead fell 8.7% in a single day, and had it closed at that price, it would have been the biggest 1-day decline since May of 1987. This kind of correction wasn't unexpected by many analysts. Maybe the equation should read: High demand + low supply + speculation = high prices?

Right now (as of September 5) LME stockpiles are sitting at 24,750 tonnes...Full article: Source

Commodities bull expected to run further
From IPE.com: Asset managers are predicting the bullish run in commodities will continue against the backdrop of the subprime crisis. “Increasing global demand, supported by the acceleration in the pace of economic development of emerging markets and constraints in supply, have pushed the oil price up every year since 2003. As efforts to expand supply capacity lag global demand growth in 2008, we expect this trend to continue,” said BNP Paribas’ senior oil market analyst Harry Tchilinguirian, speaking at the third annual Dow Jones Indexes AIG Commodities Outlook in London.

Soil erosion, desertification, urbanisation, shrinking water reserves, land diversion from its traditional uses and a rapid global population growth have resulted in a decline in grain land per capita, which in turn constrains supply of agricultural commodities at a time of rising demand – particularly in emerging countries – and rapid capacity expansion of the biofuels industry, according to Mehdi Chaouky, fundamental analyst at Diapason Commodities Management