Safehaven | They All Rolled Over And One Fell Out

November 17, 2006

They All Rolled Over And One Fell Out
by Rob Kirby

For those of you watching the ticker on your T.V. screens and noticing the spot price of crude oil dropping like a stone - don't worry too much. The price of oil is not likely to fall to zero anytime soon.

The price being displayed on your screen is in fact the futures price of what is known as the spot crude oil. Today, November 16, 2004 the spot month for crude oil is the December 2006 futures contract.

Trading of this contract ceases today, November 17:

Delivery Month	Termination of Trading	Notice Day	Allocation of Deliveries	First Delivery Day	Last Delivery Day
2006
January	Dec 20, 2005	Dec 22, 2005	Dec 21, 2005	Jan 1	Jan 31
February	Jan 20	Jan 24	Jan 23	Feb 1	Feb 28
March	Feb 21	Feb 23	Feb 22	Mar 1	Mar 31
April	Mar 21	Mar 23	Mar 22	Apr 1	Apr 30
May	Apr 20	Apr 24	Apr 21	May 1	May 31
June	May 22	May 24	May 23	Jun 1	Jun 30
July	Jun 20	Jun 22	Jun 21	Jul 1	Jul 31
August	Jul 20	Jul 24	Jul 21	Aug 1	Aug 31
September	Aug 22	Aug 24	Aug 23	Sep 1	Sep 30
October	Sep 20	Sep 22	Sep 21	Oct 1	Oct 31
November	Oct 20	Oct 24	Oct 23	Nov 1	Nov 30
December	Nov 17	Nov 21	Nov 20	Dec 1	Dec 31

What this means is this; as of tomorrow's close of trade, the "spot" price of crude oil will in trading parlance - "roll" or become the January 2007 futures contract which is trading at a price roughly 2 dollars higher:

And with this roll being completed, here is a look at contract expiries for 2007:

2007 Termination of trade
January	Dec 19, 2006	Dec 21, 2006	Dec 20, 2006	Jan 1	Jan 31
February	Jan 22	Jan 24	Jan 23	Feb 1	Feb 28
March	Feb 20	Feb 22	Feb 21	Mar 1	Mar 31
April	Mar 20			Apr 1	Apr 30
May	Apr 20			May 1	May 31
June	May 22	May 24	May 23	Jun 1	Jun 30
July	Jun 20			Jul 1	Jul 31
August	Jul 20			Aug 1	Aug 31
September	Aug 21			Sep 1	Sep 30
October	Sep 20			Oct 1	Oct 31
November	Oct 22			Nov 1	Nov 30
December	Nov 16	Nov 21	Nov 20	Dec 1	Dec 31

While this is a somewhat simplified explanation of what is really occurring - you might want to think in these terms;

Given the prices in the session overview above - a two dollar drop in the price of "spot" crude oil [Dec. 06] today/tomorrow along with a corresponding [relative] two dollar drop in the next contract month [Jan. 07] will produce a different or "new" spot contract [Jan. 2007] commencing on Nov. 20th - with the same price per barrel as today, before prices fell a couple of bucks.

This type of price movement is not that unusual at contract expiration when the "futures curve" is said to be in steep contango [think of contango as meaning prices rise - upward, to the right on a graph - over time] eg. - contango in gold:

Rob Kirby
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