FOLLOWING THREAD #OOTT #OIL

I don't agree as it offers lots of opportunities for participants to have an edge on the market. Remember, the more the variables, the more arbitrage and opportunities. That's no wonder why 90% of hedge funds focused on commodities disappeared the

Past decade as they failed to grasp the variables of the real world (of the PT per se) because they don't have assets or agents to know what's going on with the underlying (i.e. the commodity)/an ace in the hole that have trading houses, since they've the asset w they've the info

remember when I said PT was opaque due to its intrinsic variables, leading to asymmetric information, well players that have a foot in both worlds (PT &FM) are the rulers of the markets. They play on dynamics that alter both worlds in order to disrupt the whole market

The latter being the PT priced by the FM. You can shoot the derivative price of aluminum for ex (or nickel lately) by withdrawing stockpiles in LME (2. Variable of PT = logistics, remember?). The demand is higher than Supply on the spot market (read now), leading to direct

Tightness, prompting higher prices directly.
That's just a basic example but that's what happened several times for the past months in some markets (copper, zinc, nickel). That's the edge that has PT and you can see it in current times. Now, there's more subtilities ofc

for the above ex, you can't just withdraw stockpile like this, it has to be agreed by the instance etc, that's why you can be creative but let's put it there that's not the subject here.
Until then, we just showed the entanglement of both worlds through their own variables.

Now, what it has to do with today's price movements etc.
Well, variables of PT altered heavily the FM and now the variables of the latter alter the former.
For the first flow (PT to FM), you can see few variables that disrupted FM for commodities lately:
- War (exogenous)//3.

- lack of investments in some commodity industry (politics, legislation//var3.)
- disruptive S&D in some areas (variable 1)
- supply chain disruption (variable 2=logistics)

I just talk about the main ones ofc but that's the idea there. It affected FMs and finance in all. but,

What we're seeing now, is spillover effects of FM to PT, strengthening the entanglement of both worlds.
The first one alters logistics since the higher prices and self sanctions lead to higher cost of financing (banks are less encline to finance physical trades as counterparties

Don't have enough credit lines, are too risky etc), leading to higher physical prices, more losses for smaller companies, less competition, more concentration, less efficiency, and risks of real shortages since there is less players (not less products!!! Not real tightness!!!)

It could lead if that continues to big trading houses mutating in too big too fail institutions, half bank half négociant.

Other thing from FM that alters PT outside higher financing costs is the the rise of margin requests from financial institutions.

Indeed, with more stress on prices, positions taken by physical participants on FM must be secured accordingly and that go through stronger margin requirements leading to also losses, risks of failure from players there. The principle of FM for commodity players lose its first

Meaning!

Another thing is the dry liquidity which is stemming from all the above in a way. With higher margin requirements, there's less participants keen to go into the market, in addition to the uncertainty linked to exogenous variables (War, Fed etc). It leads to dry OI

Spreads widen, volatility increase and we see strong price gyrations. In several tweets I spoke about more complex price movements linked to derivatives spurred by Greeks strategies coupled with PT moves (see first tweet on my profile) but they're all from this variable.

With such volatility, it directly widens the discrepancy between FM and PT, as it doesn't reflect the reality even if it alters it.
That's the thing, the conundrum:
Both worlds are entangled with their intrinsic variables, today more than ever but they're really different as

FM prices don't reflect the reality. One may believe to general tightness one day (Oil surges by 6%) then to destructive demand everywhere the day after because Oil prices drops by 5%. You can see the problem here.
Urals Med is -35$, Rim Labuen+$7, etc, regarding the location

and the subtilities of the product, the PT can be bullish or bearish, neutral or in shortage. Something that paper market (FM) can't appreciate since PT is (see variable 1) the backbone of everything and has too many variables to be translated on FMs.
Here I think the end of

This thread which does not go too deep after all in the physical trading but I think it's explaining the main concepts that are more than ever important I think for common people.If you want to have more specific views on commodity trading, pls feel free to follow me, @Big_Orrin

too as his pov is neutral like mine.

@JavierBlas @josephttwallace too for global News/views on the matter.

Thks again, Long thread but worth it I think

#oott #oil