Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: rich evans who wrote (9457)	5/23/2008 2:49:53 PM
From: Patrick Slevin	Respond to of 33421

Actually it's a slightly different situation. What you are referring to is a Normal Curve, while Contango is the process of a Future Price falling in Value to meet Spot. Seems the same, but technically different. In Contango your expectation is that the $140 Contract that you sold will approach today's Spot, all else being equal.

To: rich evans who wrote (9457)	5/27/2008 2:27:07 PM
From: John Pitera	Read Replies (3) \| Respond to of 33421

In 1997 I witnessed a presentation done by Denise Palmer Huggins, she was the Houston branch head of NYMEX. She had a really interesting comment. In the big oil bust of 1984-86 when the near by crude contracts fell below 10 a barrell the strip going out 7 years worked it's way up to an average price of $19 a barrel. When we had the Iraq invasion of Kuwait and energy prices spiked to about $40 a barrel for the nearby contracts, again the forward 7 year strip rolled down gently and was pricing far dated crude contracts again at about $19. He comment at the time is that $19 is about the long term price of crude over longer periods of time. This $19 number has obvious moved significantly higher, but the key point is that we shall continue to see the long dated energy strip move above and below par with the nearby contract. Notice how Jan 2009 and Dec 2009 have already broken below the price of the nearby highest open interest spot month. I was an exceptionally rare environment for the whole curve to have been taken north of the spot month after such a parabolic run. The Top For WTIC should be in for 2008. John