While front-month heating oil, WTI and RBOB swaps have hit record highs, contracts further out on the curve have flattened dramatically, suggesting that current market optimism may not last.
"Forecasts for next year are surprisingly restrained, everyone is around the current price -- except for Goldman -- plus or minus a few dollars," MF Global Analyst Edward Meir said in in an email.
The two-year curve for heating oil swaps narrowed to a premium of 6.10 cents, a record low during the nearly 18 months it has been tracked by Platts. The two-year swaps' 6.10-cent premium to the front month is down sharply from the average 24.18-cent premium it held this year and the 30.52-cent premium it held in the first six months of 2009, according to Platts, which began tracking the data on June 1, 2009.
The curves for WTI and RBOB front-line swaps assessed by Platts showed similar results.
The two-year swap for WTI at $89.85/barrel closed on Thursday at a $1.33 premium to the front month at $88.52/b, compared with a 2010 average premium of $6.50. The WTI 2-year curve has not been that tight since September 26, 2008. Meanwhile, the front-month swap has not been that high since May 3, 2010.
In a research note, analyst Cameron Hanover attributed the strength in the front-month contracts to traders "worrying they might miss the boat," as the dollar weakens and equities rise.
And if it were not for the record-high inventory in the US, the curves would be even flatter, analysts said. "The fact that we still have so much inventory around is preventing a more pronounced backwardation," Meir said.
The RBOB front-line curve actually is in backwardation with the two-year swap at $2.3278/gallon worth a point less than the front month at $2.3279/gal, the first time that occurred since April 1. Meanwhile, the RBOB front-line on Thursday hit a six-month high of $2.3279/gal.
But while traders are looking ahead to the "prospect" of better demand and find the current news "encouraging," Cameron Hanover cautioned that "with expectations seemingly lined up heavily on the bullish side, we do need to be aware of the potential for disappointment."
And in the case of long-dated contract, it appears that some disappointment may already have been priced in.
"Forecasts for next year are surprisingly restrained, everyone is around the current price -- except for Goldman -- plus or minus a few dollars," MF Global Analyst Edward Meir said in in an email.
The two-year curve for heating oil swaps narrowed to a premium of 6.10 cents, a record low during the nearly 18 months it has been tracked by Platts. The two-year swaps' 6.10-cent premium to the front month is down sharply from the average 24.18-cent premium it held this year and the 30.52-cent premium it held in the first six months of 2009, according to Platts, which began tracking the data on June 1, 2009.
The curves for WTI and RBOB front-line swaps assessed by Platts showed similar results.
The two-year swap for WTI at $89.85/barrel closed on Thursday at a $1.33 premium to the front month at $88.52/b, compared with a 2010 average premium of $6.50. The WTI 2-year curve has not been that tight since September 26, 2008. Meanwhile, the front-month swap has not been that high since May 3, 2010.
In a research note, analyst Cameron Hanover attributed the strength in the front-month contracts to traders "worrying they might miss the boat," as the dollar weakens and equities rise.
And if it were not for the record-high inventory in the US, the curves would be even flatter, analysts said. "The fact that we still have so much inventory around is preventing a more pronounced backwardation," Meir said.
The RBOB front-line curve actually is in backwardation with the two-year swap at $2.3278/gallon worth a point less than the front month at $2.3279/gal, the first time that occurred since April 1. Meanwhile, the RBOB front-line on Thursday hit a six-month high of $2.3279/gal.
But while traders are looking ahead to the "prospect" of better demand and find the current news "encouraging," Cameron Hanover cautioned that "with expectations seemingly lined up heavily on the bullish side, we do need to be aware of the potential for disappointment."
And in the case of long-dated contract, it appears that some disappointment may already have been priced in.
