Brent Backwardation Favors BNO Over USO

July 30, 2012

Brent's backwardation widened to double-digit levels last week, while natural gas moved into contango.

 

[This article previously appeared on HardAssetsInvestor.com and is republished here with permission.]

 

Featured Commodity


CONTANGO WATCH: Brent's backwardation widened last week. Rolling front-month Brent contracts now yields 11.27 percent annualized, and the benchmark remains the preferred option for bullish exposure to crude oil.

Rival West Texas Intermediate (WTI) remains in contango as it has been for the vast majority of the year amid infrastructure bottlenecks in the U.S. Midwest. Thus, the United States Brent Oil Fund (BNO), which holds front-month Brent contracts, is seen as superior to the United States Oil Fund (USO), which holds front-month WTI contracts.

ROLL COSTS: Investors net 11.27 percent

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 U.S.' most important commodities, helping investors better understand the market and seize buy-and-sell opportunities as soon as they arise.

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

Data as of close on July 27, 2012
Data courtesy IndexUniverse.com

Energy

Agricultural Commodities

 

Precious Metals

 

Soft Commodities

Industrial Metals

 

Current Roll Previous Week's Roll Past Year Average Roll Historical 07/30 5YR Annualized Roll
Energy WTI 4.08% 3.98% 0.30% 11.04%
Brent -11.27% -8.56% -0.58% 2.52%
HH Natural Gas 5.05% -4.56% 3.04% 12.15%
Precious Metals Gold 0.67% 0.99% 0.12% 1.23%
Silver 1.38% 1.12% 0.12% 1.51%
Platinum 1.66% -4.04% 0.25% 0.66%
Palladium 2.79% 0.70% 0.25% 1.92%
Industrial Metals Copper 0.88% 0.32% -0.00% -1.01%
Aluminum 11.12% 9.47% 0.55% 4.96%
Zinc 1.30% 0.98% 0.11% 4.63%
Lead 2.53% 2.56% 0.21% 3.38%
Nickel 1.45% 1.29% 0.09% 1.78%
Tin 0.33% 0.19% 0.07% 0.71%
Agricultural Commodities Corn -2.18% -13.48% -1.02% 8.71%
Wheat 5.92% 3.07% 2.59% 17.80%
Soybeans -31.88% -28.55% 0.04% -26.12%
Live Cattle 32.07% 28.88% 0.88% 33.27%
Lean Hogs -61.14% -63.29% 0.62% -42.84%
Soft Commodities Coffee C 6.83% 5.17% 1.00% 7.69%
Cocoa 1.89% 2.70% 1.01% 3.27%
Sugar #11 2.98% 0.40% -2.03% 6.80%
Cotton #2 5.93% 9.14% -0.44% 5.19%

 

Energy
WTI


WTI
Current Annualized Cost
4.08%
Annualized Cost 1 Week Previous
3.98%
Historical 07/27 5YR Annualized Roll
11.04%
Contract Months:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
RCWTI

CONTANGO WATCH: WTI is in contango through most of the one-year forward curve.

ROLL COSTS: The front-month roll rose slightly to 4.08 percent annualized from 3.98 percent.

BOTTOM LINE: Contango

Brent


Brent
Current Annualized Cost
-11.27%
Annualized Cost 1 Week Previous
-8.56%
Historical 07/27 5YR Annualized Roll
2.52%
Contract Months:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
RCBrent

CONTANGO WATCH: Brent's backwardation widened last week. Rolling front-month Brent contracts now yields 11.27 percent annualized, and the benchmark remains the preferred option for bullish exposure to crude oil.

Rival West Texas Intermediate (WTI) remains in contango as it has been for the vast majority of the year amid infrastructure bottlenecks in the U.S. Midwest. Thus, the United States Brent Oil Fund (BNO), which holds front-month Brent contracts, is seen as superior to the United States Oil Fund (USO), which holds front-month WTI contracts.

ROLL COSTS: Investors net 11.27 percent annualized from rolling front-month Brent contracts.

BOTTOM LINE: Backwardation

HH Natural Gas


HH
Current Annualized Cost
5.05%
Annualized Cost 1 Week Previous
-4.56%
Historical 07/27 5YR Annualized Roll
12.15%
Contract Months:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
RCHH

CONTANGO WATCH: Natural gas returned to contango, but roll costs are relatively insignificant.

ROLL COSTS: It costs investors 5.05 percent annualized to roll front-month natural gas contracts.

BOTTOM LINE: Contango

Precious Metals
Gold


Gold
Current Annualized Cost
0.67%
Annualized Cost 1 Week Previous
0.99%
Historical 07/27 5YR Annualized Roll
1.23%
Contract Months:
Feb Apr Jun Aug Oct Dec
RCGold

CONTANGO WATCH: Gold is in mild contango.

ROLL COSTS:
It costs investors 0.67 percent annualized to roll front-month gold contracts, down from a cost of 0.99 percent.

BOTTOM LINE: Mild Contango

Silver


Silver
Current Annualized Cost
1.38%
Annualized Cost 1 Week Previous
1.12%
Historical 07/27 5YR Annualized Roll
1.51%
Contract Months:
Jan Mar May Jul Sep Dec
RCSilver

CONTANGO WATCH: Silver is in mild contango throughout most of the forward curve.

ROLL COSTS:
It costs investors 1.38 percent annualized to roll front-month silver contracts, down from 1.12 percent.

BOTTOM LINE: Mild Contango

Platinum


Platin
Current Annualized Cost
1.66%
Annualized Cost 1 Week Previous
-4.04%
Historical 07/27 5YR Annualized Roll
0.66%
Contract Months:
Jan Apr Jul Oct
RCPlatin

CONTANGO WATCH: Platinum is in mild contango at the front end of the forward curve.

ROLL COSTS
: It costs investors 1.66 percent annualized to roll front-month platinum contracts, down from a net of 4.04 percent.

BOTTOM LINE: Contango

Palladium


Pallad
Current Annualized Cost
2.79%
Annualized Cost 1 Week Previous
0.70%
Historical 07/27 5YR Annualized Roll
1.92%
Contract Months:
Mar Jun Sep Dec
RCPallad

CONTANGO WATCH: Palladium is in contango at the very front end of the curve.

ROLL COSTS:
It costs investors 2.79 percent annualized to roll front-month palladium contracts, up from 0.70 percent.

BOTTOM LINE: Contango

Industrial Metals
Copper


Copper
Current Annualized Cost
0.88%
Annualized Cost 1 Week Previous
0.32%
Historical 07/27 5YR Annualized Roll
-1.01%
Contract Months:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
RCCopper

CONTANGO WATCH: Copper is in mild contango across the one-year forward curve.

ROLL COSTS
: It costs investors 0.88 percent annualized to roll front-month copper contracts, up from 0.32 percent.

BOTTOM LINE: Mild Contango

Aluminum


Alum
Current Annualized Cost
11.12%
Annualized Cost 1 Week Previous
9.47%
Historical 07/27 5YR Annualized Roll
4.96%
Contract Months:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
RCAlum

CONTANGO WATCH: The aluminum forward curve is in steady contango.

ROLL COSTS:
Front-month annualized roll costs moved up to 11.12 percent from 9.47 percent the week before.

BOTTOM LINE: Contango

Zinc


Zinc
Current Annualized Cost
1.30%
Annualized Cost 1 Week Previous
0.98%
Historical 07/27 5YR Annualized Roll
4.63%
Contract Months:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
RCZinc

CONTANGO WATCH: Zinc is in mild contango across the one-year forward curve.

ROLL COSTS: It costs investors 1.3 percent annualized to roll front-month zinc contracts, up from a cost of 0.98 percent.

BOTTOM LINE: Mild Contango

Lead


Lead
Current Annualized Cost
2.53%
Annualized Cost 1 Week Previous
2.56%
Historical 07/27 5YR Annualized Roll
3.38%
Contract Months:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
RCLead

CONTANGO WATCH: Lead is in contango across the one-year forward curve.

ROLL COSTS:
It costs investors 2.53 percent annualized to roll front-month lead contracts, down slightly from 2.56 percent.

BOTTOM LINE: Contango

Nickel


Nickel
Current Annualized Cost
1.45%
Annualized Cost 1 Week Previous
1.29%
Historical 07/27 5YR Annualized Roll
1.78%
Contract Months:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
RCNickel

CONTANGO WATCH: Nickel is in mild contango throughout the forward curve.

ROLL COSTS:
Roll costs for nickel edged up to 1.45 percent from 1.29 percent.

BOTTOM LINE: Mild Contango

Tin


Tin
Current Annualized Cost
0.33%
Annualized Cost 1 Week Previous
0.19%
Historical 07/27 5YR Annualized Roll
0.71%
Contract Months:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
RCTin

CONTANGO WATCH: The tin forward curve is in mild contango throughout the one-year forward curve.

ROLL COSTS:
It costs investors 0.33 percent annualized to roll front-month tin contracts, up from 0.19 percent.

BOTTOM LINE: Mild Contango

Agricultural Commodities
Corn


Corn
Current Annualized Cost
-2.18%
Annualized Cost 1 Week Previous
-13.48%
Historical 07/27 5YR Annualized Roll
8.71%
Contract Months:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
RCCorn

CONTANGO WATCH: Corn's backwardation at the front end of the curve narrowed last week.

ROLL COSTS:
Investors net 2.18 percent annualized from rolling front-month corn contracts, down from a net of 13.48 percent.

BOTTOM LINE: Backwardation

Wheat


Wheat
Current Annualized Cost
5.92%
Annualized Cost 1 Week Previous
3.07%
Historical 07/27 5YR Annualized Roll
17.80%
Contract Months:
Mar May Jul Sep Dec
RCWheat

CONTANGO WATCH: Wheat's contango widened last week.

ROLL COSTS: Wheat's annualized front-month roll costs rose to 5.92 percent from 3.07 percent.

BOTTOM LINE: Contango

Soybeans


SoyB
Current Annualized Cost
-31.88%
Annualized Cost 1 Week Previous
-28.55%
Historical 07/27 5YR Annualized Roll
-26.12%
Contract Months:
Jan Mar May Jul Aug Sep Nov
RCSoyB

CONTANGO WATCH: Soybeans' backwardation widened as prices remained near record highs last week.

ROLL COSTS: Investors net 31.88 percent annualized from rolling front-month soybeans contracts, up from 28.55 percent.

BOTTOM LINE: Steep Backwardation

Live Cattle


LiveC
Current Annualized Cost
32.07%
Annualized Cost 1 Week Previous
28.88%
Historical 07/27 5YR Annualized Roll
33.27%
Contract Months:
Feb Apr Jun Aug Oct Dec
RCLiveC

CONTANGO WATCH: The live cattle curve is in contango across most of the one-year forward curve.

ROLL COSTS:
It costs investors 32.07 percent annualized to roll front-month live cattle contracts, up from a cost of 28.88 percent.

BOTTOM LINE: Steep Contango

Lean Hogs


LeanH
Current Annualized Cost
-61.14%
Annualized Cost 1 Week Previous
-63.29%
Historical 07/27 5YR Annualized Roll
-42.84%
Contract Months:
Feb Apr May Jun Jul Aug Oct Dec
RCLeanH

CONTANGO WATCH: The front half of the lean hogs forward curve is in steep backwardation.

ROLL COSTS: Investors net 61.14 percent annualized from rolling front-month lean hogs contracts, down slightly from a net of 63.29 percent.

BOTTOM LINE: Steep Backwardation to Contango

Soft Commodities
Coffee C


Coffee
Current Annualized Cost
6.83%
Annualized Cost 1 Week Previous
5.17%
Historical 07/27 5YR Annualized Roll
7.69%
Contract Months:
Mar May Jul Sep Dec
RCCoffee

CONTANGO WATCH: Coffee is in contango throughout the one-year forward curve.

ROLL COSTS:
Annualized front-month roll costs rose to 6.83 percent, up from 5.17 percent.

BOTTOM LINE: Contango

Cocoa


Cocoa
Current Annualized Cost
1.89%
Annualized Cost 1 Week Previous
2.70%
Historical 07/27 5YR Annualized Roll
3.27%
Contract Months:
Mar May Jul Sep Dec
RCCocoa

CONTANGO WATCH: Cocoa is in contango throughout the one-year forward curve.

ROLL COSTS:
It costs investors 1.89 percent to roll front-month cocoa contracts, down from a cost of 1.89 percent.

BOTTOM LINE: Mild Contango

Sugar #11


Sugar
Current Annualized Cost
2.98%
Annualized Cost 1 Week Previous
0.40%
Historical 07/27 5YR Annualized Roll
6.80%
Contract Months:
Mar May Jul Oct
RCSugar

CONTANGO WATCH: Sugar is in contango at the front end of the curve.

ROLL COSTS:
It costs investors 2.98 percent annualized to roll front-month sugar contracts, up from a cost of 0.40 percent.

BOTTOM LINE: Mild Contango to Backwardation

Cotton #2


Cotton
Current Annualized Cost
5.93%
Annualized Cost 1 Week Previous
9.14%
Historical 07/27 5YR Annualized Roll
5.19%
Contract Months:
Mar May Jul Oct Dec
RCCotton

CONTANGO WATCH: Cotton is in contango throughout the one-year forward curve.

ROLL COSTS:
It costs investors 5.93 percent annualized to roll front-month cotton contracts, down from a cost of 9.14 percent.

BOTTOM LINE: Contango

 

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