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As natural gas drops into backwardation, we look back to 2009.


Featured Commodity

CONTANGO WATCH: With the roll into November contracts, natural gas has dropped into backwardation and all figures have now returned to relatively normal levels.

We've seen high roll costs all through September, but the five-year average historical roll cost for this date had swung to truly astronomical levels all month. Let's take a look at the numbers that went into that figure all month:

8/30/2013 9/6/2013 9/13/20133 9/20/2103 9/27/2103 10/4/2103
2013 40.53% 33.93% 28.65% 27.74% 79.90% 75.36%
2012 106.35% 76.07% 63.49% 98.93% 164.17% 153.07%
2011 41.61% 37.13% 24.74% 31.23% 16.13% 163.57%
2010 157.03% 98.15% 98.19% 75.28% 43.45% 168.71%
2009 3142.28% 4266.61% 3732.93% 1124.31% 1242.82% 560.79%
5-Year Average Historical Roll Cost 697.56% 902.38% 789.60% 271.50% 309.29% 224.30%

Now there's a fair amount of seasonal fluctuations due to hurricane season disrupting supply and whatnot that's clearly to be expected. 2009, however, is when things clearly went wacky.

Now removing all that insanity for a four-year historical average for the above dates gives us the following figures:

4-Year Average Historical Roll Cost 86.38% 61.32% 53.77% 58.30% 75.91%

So there is a fair amount of seasonal fluctuation that averages rather steep, but nowhere near the ridiculous 2009 levels. Steep contango clearly rules the day for early fall, but that can shift from 16 percent to 164 percent. As we roll into October, however, you'll see that the majority of the time, natural gas drops into backwardation, so be smart on how you play natural gas through September, if you're brave enough to be there in the first place.

ROLL COSTS: Investors net 75.36 percent annualized to roll front-month natural gas contracts, up from a cost of 79.90 last week.

BOTTOM LINE: Backwardation

Has oil moved into backwardation yet? What does corn's roll yield look like? How do you know when it's time to buy—or sell?

Each week, we investigate the futures curves of the most important commodities in the U.S., helping investors better understand the market and seize buy-and-sell opportunities as soon as they arise. For an easy-to-understand explanation of contango, backwardation and roll yields, please click here to go to our Hard Assets University.

To see current contango curve and front-month roll costs (November 2013 – December 2013) for each of our selected commodities, please select a sector or commodity below (or read the whole report):

Data as of close on October. 04, 2013
Data courtesy IndexUniverse.com

Energy

Agricultural Commodities

Precious Metals

Soft Commodities

Industrial Metals

.

Current Roll Previous Week's Roll Past Year Average Roll Historical 10/04 5YR Annualized Roll
Energy WTI -3.52% -6.01% 0.17% 4.50%
Brent -9.63% -9.80% -0.69% -4.00%
HH Natural Gas 75.36% 79.90% 1.81% 224.30%
NYH Heating Oil -2.22% -2.11% 1.81% 2.96%
RBOB Gasoline -5.03% -6.94% 1.81% -13.65%
Precious Metals Gold 0.32% 0.36% 0.06% 0.64%
Silver 0.94% 0.44% 0.14% 0.88%
Platinum 0.69% 1.22% 0.17% 0.94%
Palladium 0.97% 0.74% 0.24% 0.98%
Industrial Metals Copper 1.63% 1.41% 0.11% 1.05%
Aluminum 10.16% 13.22% 0.62% 7.07%
Zinc 7.88% 10.37% 0.62% 6.06%
Lead 5.76% 5.92% 0.18% 2.40%
Nickel 2.16% 2.35% 0.15% 1.41%
Tin 0.65% 0.77% 0.03% -1.70%
Agricultural Commodities Corn 12.01% 11.48% -3.49% 9.59%
Wheat 5.50% 5.07% 1.29% 15.54%
Soybeans 0.00% 0.80% -2.91% 3.34%
Live Cattle 8.80% 19.28% 1.27% 9.44%
Lean Hogs 16.24% -27.26% 0.81% 50.90%
Soft Commodities Coffee C 11.48% 11.55% 2.21% 8.00%
Cocoa 0.92% 0.46% 0.14% 3.05%
Sugar #11 -3.52% 12.83% 1.32% -15.42%
Cotton #2 -0.23% 6.99% 0.94% 1.52%

 

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