Crude Rallies
Jan 19th, 2009 | By Doug Casey | Category: Financial NewsIn the energy market on Friday, oil rallied, with crude for February delivery closing at $36.51/barrel, up $1.11. February reformulated gasoline lost three-quarters of a cent, to $1.1672/gallon.
Analysts said traders short-selling February oil bought the contract to cover their positions before February futures expire on Tuesday, leading to a tightening of the spread between the February and March contracts.
Despite the shrinking spread between February and March, the price difference was still big, maintaining the state some have termed a super-contango.
That contango has created an opportunity for arbitrage, where investors bought the February contract, taking the physical oil delivery and storing it, and at the same time sold the much higher-priced March contract. When that expires, they can deliver the oil they’ve held in storage since February.
The arbitrage has pushed oil inventories at Cushing, Oklahoma — delivery point for Nymex oil futures — to 33 million barrels last week, the highest level since April, 2004, and close to the operable storage capacity at Cushing, about 34 million barrels.
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