Pundits have recently been talking about stocks at Cushing, OK and the effects of the Keystone pipeline. They have also been talking about the widening front month spread, which recently crossed below the -$4.00 barrier for the first time since May 2010. However, there is a less discussed effect of Cushing that takes place much further along the curve.
Historically, the red December contract, traded at a discount to the white December contract, that is, traders paid a premium for the closest (white) December and a discount for the next year’s (red) December. This changed with the advent of the contract curve switching from backwardation to a contango—since the pop of the commodity bubble, the white Dec has been trading at a discount while the Red trades at a premium, as shown above.
Yet in today’s issue of The Schork Report, analyst Hamza Khan illustrates a switch back toward negative recently, in November and December 2010. Are we regressing to the historical patterns? Not quite.
For instance, this quarter has seen red Dec trading at a premium for the years 2006, ’07, ’09, ’10 and ’11. Q1 2007 saw Cushing stocks at (then record highs of) 28.01 MMbbls, while 2009 broke that record with a surge to 35.00 MMbbls.