Price Rising, Open Interest Falling: Cushing is STILL FULL
We're almost exactly where we were a month ago. Unless half of America decides to spontaneously enter a cross-country road race as stay-at-home orders are lifted, the June contract is going to become a hot potato as expiry nears, just like May. Technicals mean almost nothing in commodity markets (a lesson I've come to learn recently), and are basically worthless in ones this manipulated/speculated.
I cite this comment from user JNKU on SeekingAlpha in full because it is the best, most thorough analysis of the situation I've seen yet:
"It looks to me like the super majors with access to the SPR or other storage capacity are doing 2 things:
1) Propping up the price of the front month contract, firing bazookas and bullets several times a day to rachet price upward and defend key levels. The ungodly amounts of money being burned doing this, and the immediate cost of buying barrels at a higher price than they otherwise would be able to get, is justified as preventing a market panic and longer-term deeper price collapse that will cost orders of magnitude more.
2) Doing #1 in a way designed to try to clear out both long and short speculators before May 19, spiking the price in both directions to clear out the weaker hands in the market. Above all what they want to do is eliminate/mitigate headline risk that comes with scary levels of volatility as all eyes are on the days before settlement.
The issue is that strong, well-funded hands forcibly moving the market for predictable reasons (which inevitably lead to a certain level of predictability in actions) are money-printing machines for quants who are even smarter/specialized in front-running market-mover operations. This inevitably also attracts people who *think* they're smarter, but don't know when to get out. Whether the latter constitute a substantial volume of open interest as we approach settlement is the question.
Also muddying the waters is the action further down the strip where people seem to be continuing to target USO. USO having inadvertently made their job easier by moving into positions with lower trade volume (thus making it easier to move prices of the underlying securities)."
I'll be watching the daily open interest figures released by NYMEX very closely this week. So far, it seems JNKU is right: from Thursday to yesterday, combined OI in June and July fell by 48000 contracts, about 7% (I have a feeling a decent chunk of that was USO rebalancing). If this trend continues maybe the market will in fact be spared the historic volatility we saw last month. My gut tells me otherwise.
I cite this comment from user JNKU on SeekingAlpha in full because it is the best, most thorough analysis of the situation I've seen yet:
"It looks to me like the super majors with access to the SPR or other storage capacity are doing 2 things:
1) Propping up the price of the front month contract, firing bazookas and bullets several times a day to rachet price upward and defend key levels. The ungodly amounts of money being burned doing this, and the immediate cost of buying barrels at a higher price than they otherwise would be able to get, is justified as preventing a market panic and longer-term deeper price collapse that will cost orders of magnitude more.
2) Doing #1 in a way designed to try to clear out both long and short speculators before May 19, spiking the price in both directions to clear out the weaker hands in the market. Above all what they want to do is eliminate/mitigate headline risk that comes with scary levels of volatility as all eyes are on the days before settlement.
The issue is that strong, well-funded hands forcibly moving the market for predictable reasons (which inevitably lead to a certain level of predictability in actions) are money-printing machines for quants who are even smarter/specialized in front-running market-mover operations. This inevitably also attracts people who *think* they're smarter, but don't know when to get out. Whether the latter constitute a substantial volume of open interest as we approach settlement is the question.
Also muddying the waters is the action further down the strip where people seem to be continuing to target USO. USO having inadvertently made their job easier by moving into positions with lower trade volume (thus making it easier to move prices of the underlying securities)."
I'll be watching the daily open interest figures released by NYMEX very closely this week. So far, it seems JNKU is right: from Thursday to yesterday, combined OI in June and July fell by 48000 contracts, about 7% (I have a feeling a decent chunk of that was USO rebalancing). If this trend continues maybe the market will in fact be spared the historic volatility we saw last month. My gut tells me otherwise.