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Back-to-Back Wild Years End on Similar Notes

Minneapolis, MN | January 9, 2024 | By: Steve Sinos, Blue Lacy Advisors, LLC

Rates for back-to-back Years End on Similar Notes

The last trading session of 2023 was only modestly softer than 2022, but risks remain, emphasizing the importance of having a trader mentality.

Three Things

  1. A lower, flatter forward curve points to a lower risk premium than the end of 2022, thanks to a strong supply response. Long-term prices show a near-unchanged market.

  2. The volatility term structure is lower but still points to persistent expected volatility. Moreover, the skew is more negative than it was at this time last year, with more demand for downside risk.

  3. All things considered, this means a strong risk management program with a trader’s mentality will be necessary to navigate 2024, just as in 2023.

Year End 2023 - The Same, but Different

2022 gave energy traders a wild ride. Just as the market started feeling relieved from the shock of the pandemic, traders were reminded how quickly geopolitics go from sensitivity tests in risk models to real life. Still, we somehow ended the year on a down note, with flashes of contango, before ending the year with prompt trading just below $84 and an average 12-month strip of $81.15. The structure showed an average backwardation of $0.41/month over the upcoming twelve months, and forecasters were wringing their hands over what was sure to be a tight market.


2023 wouldn’t be much different. Not only did we have a new war go live, but we flirted with a banking crisis. Thankfully, forecasters were again proven wrong, as supply responded to high prices and exports grew to record levels. The forward curve ended the year 7% lower on average at $75.79, with an average backwardation of $0.24/month.


*This summary is based off December 31, 2023


A free excerpt, such as this one, will be published on a delay periodically. This is an excerpt from Blue Lacy Advisors, LLC's (“Blue Lacy”) weekly commentary for clients, which is based on a collection of models, research/analytical subscriptions, and bespoke work. Each week Blue Lacy explores how market drivers included in these analyses might affect or be used in clients' planning, budgeting, and execution of strategy. Call Blue Lacy to make an appointment today!


Meet the Author!

Phone: +1-832-413-3124

Steve has spent his career in strategy, risk, trading, and investment. He works with investors to source investments in opportunistic or high growth sectors, with particular interest in early-stage companies solving clearly defined problems.

He is currently a Managing Partner with Blue Lacy Advisors LLC, giving management teams and investors confidence in their decision making by supporting strategic planning and execution, risk management, commodity trading, and market analysis.

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