A week ago we exposed the real reason for the "crazy volatility" in crude oil markets, and specifically the driver of the immense rally (despite weak data) in crude – a massive liquidation of the triple-inverse ETF DWTI. Today we have another mysterious, even larger spike in crude oil prices (for no good reason other than 'old' misunderstood rumors about OPEC production cuts). The driver, it would appear, is another liquidation as the ETF trades at a huge discount to NAV. The last time this happened, it didn't last.
We saw the same actin last week (and the delayed data exposed the liquidtaion)… it's happening again…
And DWTI is trading at a dramatic discount to NAV – which suggests – given the day lag (There is a day's lag between when redemptions and creations are ordered and when they show up in share figures) that buying pressure hits today…
On Wednesday, oil prices surged more than 8 percent to $32.28 a barrel, despite a seemingly bearish report from the U.S. Energy Information Administration showing nationwide crude inventories rose by 7.8 million barrels last week.
The evidence is even clearer in the sudden spike in the 1st-2nd month spread – despite no news whatsoever on the storage constraints (as ETF managers are forced to buy back futures in the front-month as the inverse ETF is liqudated)
So that explains the sudden squeeze carnage today… and without further liquidation in the fund whythe rip won't hold.
via Zero Hedge http://ift.tt/1KKNv5P Tyler Durden