The Oil Market is Throwing a Curve

The Wall Street Journal, Thursday, March 4, 2010 

HEARD ON THE STREET: Financial Analysis and Commentary

The Oil Market is Throwing a Curve, Liam Denning

“it isn’t that the prices haven’t risen.  The price of crude (oil) on the New York Mercantile Exchange has increased 7% since early December… But oil for delivery in 12 months has fallen 0.2%, meaning the forward curve has flattened out considerably.”…

Surplus crude must be sold cheaply or stored.  The latter (stored crude) requires forward prices to rise relative to spot prices to make it economical.  Either way the weak supply-and-demand picture points to the spread widening.  A steep upward slope in the crude curve erodes overall returns for investors in passive funds, which buy futures and roll them forward into new positions as they expire.” 

The graph in this article: “Squeezy Feeling (Discount of first month Nymex crude-oil futures to 12th month dollars per barrel)” shows a graph with oil discounts decreasing in the last 14 months from a bit more than 16 to 2.8% now, and yet there are high stocks of oil.

This article, a rather difficult one for all but oil investors,  uses a baseball idiom/metaphor as the title of the article to emphasize the current unpredictability of the oil market. If a pitcher in a baseball game throws a curve at the batter, it is an unpredictable throw.  It may throw the batter off his timing. 

I wonder if the author of the article played baseball or is a baseball fan.  Not only does the title use a baseball metaphor, but there are many “curves” in the article: “crude curve”, “futures curve”.  Of course, a curve is used in standard English to denote a rounded area on a graph, in this instance oil futures.


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