Oil Index versus Futures price

P

ph4t

Registered User
Messages
42
I was looking at the increase in WTI oil futures price versus the increase in an oil index over the last two months and can't understand the under performance.

The oil price on 4/03/2009 was $45.38.
The oil price on 4/05/2009 was $54.47.
The percentage change is +20.03%.

SPGSCLP on 4/03/2009 was 388.89.
SPGSCLP on 4/05/2009 was 428.72.
The percentage change is +10.24%.

What is the reason for this?
 
Oil Futures expire every month. When expiry occurs one must sell out of the expiring contract (if long) and buy the next month's contract to maintain exposure. This is called 'rolling' futures forward and is how the index (SPGSCLP) will achieve it's return. However, when it 'rolls' a roll yield is incurred. This is negative when the oil futures curve is in contago (upward sloping). This is the case at present. So when the futures rolled in March (say oil was at $48), you sell this expiring contract and buy the April contract. Unfortunately you cannot buy this new contract at $48 and have to pay say $50.4. You have incurred a 5% negative roll yield. Same occured in April and hence the 10% difference. Sorry if I went overboard with the detail. Hope this helps.
 
I would say that approximately 65% of the time over the last 10 years oil has been in contango. The rest of the time its been in backwardation (downward sloping). This is only a guess though.
 
You must log in or register to reply here.
Back
Top