Tuesday, March 8, 2016

The Idiocratic Feedback Loop

Idiots bid up their own assets and then make up fake reasons for why they're rallying...

When gamblers want to bet on "oil" they buy the futures, they don't buy physical barrels of oil. All good considering that oil futures can be leveraged 20x and are otherwise disconnected from reality 29 days out of 30 each month. They buy oil futures for many reasons - fake OPEC deals, short-covering, Groupthink, CNBS etc.

But what they always forget is that if the spot price is not rallying along with the futures, then they're only driving an even larger GAP between fantasy and reality.

ZH: March 8, 2016
EIA Forecasts Higher Production and Lower Demand For 2016 and 2017

To show what this looks like, I took the front month contract and baselined the past month to the last expiration price aka. "spot". Then I compared it to the December contract:

Mind the Gap:
Unless the spot oil market rallies to flatten the curve, December oil now has a -38% loss guaranteed, assuming spot doesn't go any lower.

Spot oil aka. "the market" is red. December is black:

U.S. daily surplus: