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We are long Oil and so far it has been a profitable trade. The primary thesis relates to the likelihood that the dollar will weaken and, therefore, commodities such as Oil should inflate. This weak dollar view is in conjunction with an Oil market that has seen a broad and dramatic decline, so may have already reached a stage of selling capitulation.

Under the guidance of our futures guru, Andrew Barber, we keep our eyes diligently focused on many futures markets to find anomalies. Currently the Oil futures market is showing a widening contango, which is a data point that is actually contrary to our long thesis, for a Trade, on Oil. Obviously, the futures curve is only one data point, but is still worth noting.

As the chart below depicts, contango in the Oil market has widened dramatically in the last month, primarily based on the almost $10 per barrel decline in front month futures. Longer out on the curve, futures have stayed largely stable, which suggests the longer term view of supply and demand has not changed. In the short term, with the decline in front month futures, the Oil futures market, at least, seems to signaling short term over supply as physical producers are being paid to store Oil, which could lead to building inventory.

Daryl Jones
Managing Director