|
London: Traders in oil and other booming commodities markets, whose prime focus was once short-term supply and demand, have shifted attention to fundamentals over a much longer timescale.
The change has been signalled by record oil prices for contracts stretching out to 2016, as well as for prompt delivery, as investors and end-users alike take the longer view.
"The futures market was designed as a short-term hedging tool, but has been taken over in the last couple of years by financial players pricing in a multi-year outlook," said Olivier Jakob of Petromatrix.
"The fundamentals rule, but the question is whether the futures market should reflect the fundamentals of the next few months or the next few years."
Front-month US futures hit a record yesterday of more than $130 a barrel, while contracts for delivery in 2016 exceeded $140.
The latest short-term factor in focus for oil is the tight supply of diesel.
But that is a symptom of long-term underinvestment in refining capacity and traders, who once concentrated on short-term inventories, are ever more focused on the future supply-demand balance.
Although high prices have eroded consumption, supply growth is not expected to keep pace and oil even at current levels might not guarantee investment in additional production.
Proxy
"The back end of the curve is a proxy for the long-term sustainable price," said Paul Horsnell of Barclays Capital.
Open interest, a measure of market activity, for US 2016 crude has risen to more than 3,000 lots up from below 1,000 in January.
The December 2008 contract has more than 200,000 lots of open interest, less than the roughly 370,000 lots on the front-month July US contract, but still a very high level.
"It seems some market participants are better understanding the longer term fundamental story [than they were] and that's probably being reflected in the longer end of the WTI (oil) futures curve," said Evan Smith of Texas-based US Global Investors.
The gradual shift from the near term has followed the arrival, beginning around 2000, of institutional investors, such as pension funds and insurers who buy in for the duration.
|
