Posted on 05/15/2009 9:39:35 AM PDT by TigerLikesRooster
Tight storage may lead to huge oil price drop
Posted by Rune Likvern on May 12, 2009 - 10:00am in The Oil Drum: Europe
Topic: Demand/Consumption
Tags: backwardation, china, china oil storage, contango, oecd, oil prices, original, tanker storage, us oil consumption, us oil storage [list all tags]
The present contango in oil prices bears all the hallmarks of an oil market where supplies are well above present fundamental physical consumption.
The recent large inventory build of petroleum, under a steep contango which now is flattening, within the big oil consumers (like the OECD countries and China) have left some with the expectation that major economies soon will begin to grow again, and that the contango now signals increased oil demand and higher oil prices in the future.
My analysis indicates that in recent months, as much as 2 -3 Mb/d of global petroleum supply has been used to build inventories. This is about to come to an end, because available storage is getting closer and closer to full and contango has begun to flatten. When additions to storage cease, the resulting drop in demand can be expected to lead to substantial downward pressure on oil prices.
(Excerpt) Read more at europe.theoildrum.com ...
I hope this guy is correct. BTW, can someone explain the term, contango?
We just bought a Suburban to haul our camper, so I am in agreement with you!
When crude oil dropped below $40 a barrel,oil companies cut back on refining to keep the prices up;gas here in northern Illinois went up to 2.45/gal yesterday.I told my kids it will be over 3.00 by Fathers Day and well over 4.00 before Labor Day.I hope I’m wrong,but we’ve been down this road before.
Good, My tactical reserve may last for a longer period.
Urkel, LOL, I hadn't seen that one before.
We’re starting a trip next Friday. Home to Ohio, on to Hershey, PA then touring Philly.
We booked it early because we did a late trip fall of 2007 to Niagara falls and got killed in gas prices. Especially in Canada.
When one is paying more for gas than the rest of the trip, it’s almost worth it to stay in hotels (except the bedbugs, yuck)
Contango - A condition in which distant delivery prices for futures exceed spot prices, often due to the costs of storing and insuring the underlying commodity. opposite of backwardation.
Contango is when the price of the oil (or other commodities) some day in the future, in short often referred to as futures, is higher than the price of oil today. This offers market participants an incentive to buy oil today and store it for future use or sale.
Some participants buy oil contracts today, then turn around and sell them into the futures market. Using this approach makes it possible to pocket an almost no-risk profit. This also helps explain the 100 + Mb of oil and petroleum products presently stored on tankers waiting for deliveries.
One could also buy it now and burn it later, at a savings/profit.
With Bush, the Oil Man's buddy, they knew they could rape us blind - and did.
With Obama, the Environ-Wacko, they know they can essentially do the same thing. Obama WANTS high prices so we use less energy. He thinks it will reduce "global warming climate change", leave more energy for his friends in third world ratholes, and punish America for its "evil" past, not to mention please the idiots on Move-on.org and their friends the environmental wackos.
Oh and might add that Hussein bows to his master, King of the house of Saud.
That “Star” belongs to Hugo Chavez....
Thanks for the ping.
Hasn't the Sierra Club made a solar powered camper puller yet?
In contango the price is lower in the future. I think you got it backwards. Normal backwardation is higher in the future than today’s spot price. That is why contango is unusual because it violates the normal risk/time trade off.
Excuse my cut and paste job. Was doing a little Farrah Fawcett research and thought I had copied your trailer sentence. LOL
Baraq’s fault.
Shout it to the housetops!
I'm just quoting (cut and pasting) what I read. Call it whatever you want. It would seem to be an opportunity for temporal disintermediation to the extent that the price difference was above the combined cost of storage and the cost of money.
How? If in contango, futures prices for a given maturity date are falling. In normal backwardation, futures are rising.
Wouldn’t that be buying high and selling low? Maybe Thackney can explain it.
I visit this site regularly and they’ve been discussing it this week: http://tonto.eia.doe.gov/dnav/pet/pet_pri_top.asp
You might want to do more research before calling people out.
You can apologize at any time. I'm waiting.
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