Big Long - Reprise
My thesis of the Big Long is that Saudi/GCC producers used sovereign reserve assets (Petrodollars/Petroeuros) as capital to fund crude oil being stored off-market by commercial market participants.
The liquidity necessary for oil market cash flow came from quantitative easing (QE), which, until October 2014, came in dollars from the Federal Reserve Bank, and from January 2015 in euros from the European Central Bank.
This had the effect of inflating and supporting oil market prices, and was achieved - via investment bank "swap dealers" - through exchanging firstly (until mid-2014) US Treasuries and then (from early 2015) euro-denominated sovereign debt (probably Bunds) for a "Dark Inventory" of crude oil which was subject to Purchase and Resale (Prepay) agreements.
In effect, this was a value swap of currency over time for oil, and we are now seeing this value swap unwound as Forties crude oil - which is the "F" in the BFOE (Brent, Forties Oseberg, Ekofisk) benchmark price - is returned to producers while Treasury Bills are returned to Saudi monetary reserves.
The Great Unwind
In the run up to today's expiry of the June 2016 Brent/BFOE futures contract the contract price rose rapidly to peak over $48/barrel.
In the meantime, the June 2016 price rose more rapidly than the price of later contact months, which has the effect of reducing the Contango, and this in turn reduces the incentive for traders to buy and store crude oil.
Meanwhile the reality of the physical crude oil market has increasingly been parting company with financial demand from Managed Money funds which have built a record long position in the market.
I found this Reuters market update, titled "Unsold crude at sea raises warning flag to oil price bounce," to contain useful information.
Dozens of tankers with unsold
