Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

Tight storage may lead to huge oil price drop
The Oil Drum: Europe ^ | 05/12/09 | Rune Likvern

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 ...


TOPICS: Business/Economy; News/Current Events
KEYWORDS: economy; energy; oil; priceplunge; storage
Navigation: use the links below to view more comments.
first 1-5051-54 next last

1 posted on 05/15/2009 9:39:35 AM PDT by TigerLikesRooster
[ Post Reply | Private Reply | View Replies]

To: TigerLikesRooster; PAR35; AndyJackson; Thane_Banquo; nicksaunt; MadLibDisease; happygrl; ...

Ping!


2 posted on 05/15/2009 9:39:58 AM PDT by TigerLikesRooster (LUV DIC -- L,U,V-shaped recession, Depression, Inflation, Collapse)
[ Post Reply | Private Reply | To 1 | View Replies]

To: TigerLikesRooster

I hope it’s in time for 4th of July! We’re pulling a camper up north and it can be pricey,


3 posted on 05/15/2009 9:40:45 AM PDT by netmilsmom (Psalm 109:8 - Let his days be few; and let another take his office)
[ Post Reply | Private Reply | To 1 | View Replies]

To: netmilsmom

“See the USA in a Chevrolet...”

No, wait.


4 posted on 05/15/2009 9:42:49 AM PDT by Jack of all Trades (Incompetence - that's change ain't it?)
[ Post Reply | Private Reply | To 3 | View Replies]

To: Jack of all Trades

“See the PRC in a GMC ...”

How’s that?


5 posted on 05/15/2009 9:44:48 AM PDT by Dr. Sivana (There is no salvation in politics.)
[ Post Reply | Private Reply | To 4 | View Replies]

To: TigerLikesRooster

6 posted on 05/15/2009 9:45:27 AM PDT by traumer
[ Post Reply | Private Reply | To 1 | View Replies]

To: netmilsmom

Ditto. We’re taking our annual “long” trek south to California. But actually, I’d hope it eases the crunch on the airlines.


7 posted on 05/15/2009 9:45:34 AM PDT by sionnsar ((Iran Azadi | 5yst3m 0wn3d - it's N0t Y0ur5 (SONY) | "Also sprach Telethustra" - NonValueAdded)
[ Post Reply | Private Reply | To 3 | View Replies]

To: TigerLikesRooster

the resulting drop in demand can be expected to lead to substantial downward pressure on oil prices.

That would be nice if it were not for the fact Erkel will add $5.oo dollars a gallon in taxes!


8 posted on 05/15/2009 9:47:00 AM PDT by AngelesCrestHighway
[ Post Reply | Private Reply | To 1 | View Replies]

To: TigerLikesRooster
"Tight storage may lead to huge oil price drop "

Cool. My tactical Diesel reserve is likely to need refilling towards the end of the summer to get through the worst of the Hurricane Season.

9 posted on 05/15/2009 9:48:48 AM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Jack of all Trades

LOL! Yeah, that’s how it used to be.


10 posted on 05/15/2009 9:49:57 AM PDT by netmilsmom (Psalm 109:8 - Let his days be few; and let another take his office)
[ Post Reply | Private Reply | To 4 | View Replies]

To: Jack of all Trades
"No, wait."

I'm working to corner the market on 1990/1991 Suburbans in excellent body condition to see me through the next 30 years. I'll be seeing the USA in GMCs and Chevrolets for a while yet.

11 posted on 05/15/2009 9:50:39 AM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 4 | View Replies]

To: Paladin2

“You can trust the man, the man who wears the star
The BIG BRIGHT TEXACO STAR!”


12 posted on 05/15/2009 9:51:05 AM PDT by Kartographer (".. we mutually pledge to each other our lives, our fortunes, and our sacred honor.")
[ Post Reply | Private Reply | To 9 | View Replies]

To: Kartographer
There was a MAD magazine "ad" all about the MAN who wears the star.

"Where's the Fire Chief?", as he gives you the ticket.

13 posted on 05/15/2009 9:53:00 AM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 12 | View Replies]

To: Paladin2

“Fire Chief” —> “Fire, Chief”


14 posted on 05/15/2009 9:53:50 AM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 13 | View Replies]

To: TigerLikesRooster
Headline =
15 posted on 05/15/2009 9:59:43 AM PDT by NordP (BHO's new book, "To Serve Man/United States" --- NO NO NO....RUN....it's a COOKBOOK!)
[ Post Reply | Private Reply | To 1 | View Replies]

To: TigerLikesRooster

I’m guessing that speculators are stashing oil away in case Israel hits Iran and Iran’s response disrupts oil pumping and transport.


16 posted on 05/15/2009 10:03:09 AM PDT by PapaBear3625 (The problem with socialism is that you eventually run out of other people's money -- Thatcher)
[ Post Reply | Private Reply | To 1 | View Replies]

To: TigerLikesRooster
When additions to storage cease, the resulting drop in demand can be expected to lead to substantial downward pressure on oil prices.

If GM can just hang on by its fingernails, then ramp up production SUVs, pick-ups and Hummers.

Of course, as posted above, Urkel Maobama will likely jack up taxes and soak up at least all of the benefit of the price decline.

17 posted on 05/15/2009 10:15:22 AM PDT by Ancesthntr (Tyrant: "Spartans, lay down your weapons." Free man: "Persian, come and get them!")
[ Post Reply | Private Reply | To 1 | View Replies]

To: TigerLikesRooster

Good article.


18 posted on 05/15/2009 10:17:46 AM PDT by Free Vulcan (No prisoners. No mercy. 2010 awaits.....)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Paladin2

El Nino is coming back, the hurricane season may be quite quiet.


19 posted on 05/15/2009 10:24:13 AM PDT by Old Professer (The critic writes with rapier pen, dips it twice, then writes again.)
[ Post Reply | Private Reply | To 9 | View Replies]

To: TigerLikesRooster

HAHAHAHAHAHAHAHA!!!!!!!!!!!!!

Anybody who thinks those gangsters who manipulate the petro-energy markets have ANY intention of allowing oil prices to deprecitate would probably buy a certain bridge in Brooklyn.

From the Arab Oil Shieks to the investors in oil futures, they all manipulate the markets. They are doing it now, they did it last year and they will never stop.


20 posted on 05/15/2009 10:27:16 AM PDT by ZULU (God guts and guns made America great. Non nobis, non nobis Domine, sed nomini tuo da gloriam.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: TigerLikesRooster

I hope this guy is correct. BTW, can someone explain the term, contango?


21 posted on 05/15/2009 10:27:35 AM PDT by OB1kNOb (I'm all for cap & trade. I want to cap government's power and trade it for a conservative one.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: netmilsmom

We just bought a Suburban to haul our camper, so I am in agreement with you!


22 posted on 05/15/2009 10:28:51 AM PDT by mom4melody
[ Post Reply | Private Reply | To 3 | View Replies]

To: ZULU

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.


23 posted on 05/15/2009 10:33:02 AM PDT by pistolpetestoys (Sarah ROCKS!!!!!)
[ Post Reply | Private Reply | To 20 | View Replies]

To: Old Professer

Good, My tactical reserve may last for a longer period.


24 posted on 05/15/2009 10:35:15 AM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 19 | View Replies]

To: Ancesthntr
"Urkel Maobama"

Urkel, LOL, I hadn't seen that one before.

25 posted on 05/15/2009 10:37:46 AM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 17 | View Replies]

To: mom4melody

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)


26 posted on 05/15/2009 10:54:09 AM PDT by netmilsmom (Psalm 109:8 - Let his days be few; and let another take his office)
[ Post Reply | Private Reply | To 22 | View Replies]

To: OB1kNOb

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.


27 posted on 05/15/2009 10:56:49 AM PDT by PaForBush
[ Post Reply | Private Reply | To 21 | View Replies]

To: OB1kNOb

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.


28 posted on 05/15/2009 11:00:23 AM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 21 | View Replies]

To: OB1kNOb

One could also buy it now and burn it later, at a savings/profit.


29 posted on 05/15/2009 11:26:02 AM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 21 | View Replies]

To: pistolpetestoys
We KNOW you are right.

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.

30 posted on 05/15/2009 11:52:41 AM PDT by ZULU (God guts and guns made America great. Non nobis, non nobis Domine, sed nomini tuo da gloriam.)
[ Post Reply | Private Reply | To 23 | View Replies]

To: ZULU

Oh and might add that Hussein bows to his master, King of the house of Saud.


31 posted on 05/15/2009 12:58:04 PM PDT by blasater1960 ( Dt 30, Ps 111, The Torah is perfect, attainable, now and forever)
[ Post Reply | Private Reply | To 30 | View Replies]

To: Kartographer

That “Star” belongs to Hugo Chavez....


32 posted on 05/15/2009 1:28:00 PM PDT by pointsal
[ Post Reply | Private Reply | To 12 | View Replies]

To: TigerLikesRooster

Thanks for the ping.


33 posted on 05/15/2009 2:37:59 PM PDT by GOPJ
[ Post Reply | Private Reply | To 2 | View Replies]

To: netmilsmom
http://en.wikipedia.org/wiki/Anal_cancer

Hasn't the Sierra Club made a solar powered camper puller yet?

34 posted on 05/15/2009 2:48:14 PM PDT by Sawdring
[ Post Reply | Private Reply | To 3 | View Replies]

To: Paladin2; OB1kNOb

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.


35 posted on 05/15/2009 2:50:13 PM PDT by 1010RD (First Do No Harm)
[ Post Reply | Private Reply | To 28 | View Replies]

To: netmilsmom

Excuse my cut and paste job. Was doing a little Farrah Fawcett research and thought I had copied your trailer sentence. LOL


36 posted on 05/15/2009 2:51:14 PM PDT by Sawdring
[ Post Reply | Private Reply | To 10 | View Replies]

To: pistolpetestoys

Baraq’s fault.
Shout it to the housetops!


37 posted on 05/15/2009 2:53:35 PM PDT by nascarnation
[ Post Reply | Private Reply | To 23 | View Replies]

To: 1010RD
"I think you got it backwards"

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.

38 posted on 05/15/2009 2:55:53 PM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 35 | View Replies]

To: Paladin2; thackney

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


39 posted on 05/15/2009 3:03:17 PM PDT by 1010RD (First Do No Harm)
[ Post Reply | Private Reply | To 38 | View Replies]

To: 1010RD
"Contango is a term used in the futures market to describe an upward sloping forward curve (as in the normal yield curve). Such a forward curve is said to be "in contango" (or sometimes "contangoed"). Formally, it is the situation where, and the amount by which, the price of a commodity for future delivery is higher than the spot price, or a far future delivery price higher than a nearer future delivery. The opposite market condition to contango is known as backwardation. Contents [hide] * 1 Occurrence * 2 Origin of term * 3 References * 4 Other uses * 5 See also * 6 External links [edit] Occurrence A contango is normal for a non-perishable commodity which has a cost of carry. Such costs include warehousing fees and interest forgone on money tied up, less income from leasing out the commodity if possible (e.g. gold).[citation needed] The contango should not exceed the cost of carry, because producers and consumers can compare the futures contract price against the spot price plus storage, and choose the better one. Arbitrageurs can sell one and buy the other for a risk-free profit too (see rational pricing – futures). If there is a near-term shortage, the price comparison breaks down and contango may be reduced or perhaps even reverse altogether into a state called backwardation. In that state, near prices become higher than far (i.e., future) prices because consumers prefer to have the product sooner rather than later (see convenience yield), and because there are few holders who can make an arbitrage profit by selling the spot and buying back the future. A market that is steeply backwardated — i.e., one where there is a very steep premium for material available for immediate delivery — often indicates a perception of a current shortage in the underlying commodity. By the same token, a market that is deeply in contango may indicate a perception of a current supply surplus in the commodity."

You might want to do more research before calling people out.

You can apologize at any time. I'm waiting.

40 posted on 05/15/2009 3:03:27 PM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 35 | View Replies]

To: Sawdring

LOL!!!

No problem!


41 posted on 05/15/2009 3:15:30 PM PDT by netmilsmom (Psalm 109:8 - Let his days be few; and let another take his office)
[ Post Reply | Private Reply | To 36 | View Replies]

To: Paladin2
I hadn't realized we were arguing or that I was calling you out. Too sensitive, given that you simply cut and pasted. I am here to learn. I've been visiting that site and was referring to this:

This is the graphic I found. I would think that the risk premium would be higher in the future, at least that is how the chart looks to me. It doesn't seem to match your definition, but I don't know a thing about the futures market. Hopefully, some FReeper will have the pity to tell us. ;-]

42 posted on 05/15/2009 3:19:14 PM PDT by 1010RD (First Do No Harm)
[ Post Reply | Private Reply | To 40 | View Replies]

To: 1010RD

Looks to me that the graph is labeled backwards compared to what I’ve found through trivial research. Given the current state of the oil futures market, one might consider buying ahead (as I’ve done for my personal consumption rather than pure speculation).


43 posted on 05/15/2009 3:39:39 PM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 42 | View Replies]

To: Paladin2

I think you are right, but it shows up on the first page of a google search images. I read the entire article along with some of the comments. Your personal consumption angle is the wisest. The speculation angle looks very speculative.

On another post, Thackney said all the insiders he knew were expecting higher prices or something to that effect.

I suppose if inflation kicks in it would affect the U.S. dollar denominated price of oil. Maybe it is being used as a hedge out of dollars? Which is what the Chinese appear to be doing.


44 posted on 05/15/2009 3:45:37 PM PDT by 1010RD (First Do No Harm)
[ Post Reply | Private Reply | To 43 | View Replies]

To: 1010RD

A few months ago (oil = $35/bbl), I wanted to buy a personal (rest of my) lifetime supply. Apparently that market is not served by the securities market. That makes me an unhappy camper.


45 posted on 05/15/2009 3:49:05 PM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 44 | View Replies]

To: Paladin2

I’d thought about that, but heard that actually taking physical delivery isn’t easy. Were you really going to store crude oil or gas/diesel?


46 posted on 05/15/2009 3:56:06 PM PDT by 1010RD (First Do No Harm)
[ Post Reply | Private Reply | To 45 | View Replies]

To: 1010RD
There are places (OK) to store crude short term, but don't seem to be interested in small/retail accounts. The national strategic petroleum reserve apparently stores oil long term at a fairly low cost.

I checked with an oil company that has a local refinery and potential local geologically appropriate storage features, but they are not interested in small/retail hedging.

That left personal storage (only two large tanker trailers), but my neighbors already complain about hardware in my (well vegetatively screened) backyard. I'm not sure how long Diesel (we bought two Diesel cars when gas went over $2 4 yr ago) can be stored, but am still looking into possibilities beyond the current ~ 6 mo capacity.

Getting crude oil to be refined later makes logical sense, but has all sorts of logistical issues. Storing finished product has less logistics, but potential aging issues.

No known retail solution identified yet.

47 posted on 05/15/2009 4:07:38 PM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 46 | View Replies]

To: Paladin2

Fascinating. I would be curious to hear the outcome once you know. Thanks in advance.


48 posted on 05/15/2009 4:51:44 PM PDT by 1010RD (First Do No Harm)
[ Post Reply | Private Reply | To 47 | View Replies]

To: 1010RD
There are some things similar to this:

http://www.fuelbank.com/

I'm not that interested in being Bernie Madoff'ed, but there are some other local org's in a similar vein in a few US geographic locations. Not sure how they have worked out over the long run.

49 posted on 05/15/2009 5:05:55 PM PDT by Paladin2 (Big Ears + Big Spending --> BigEarMarx, the man behind TOTUS)
[ Post Reply | Private Reply | To 48 | View Replies]

To: 1010RD
If in contango, futures prices for a given maturity date are falling. In normal backwardation, futures are rising.

No.

When current prices are lower than expected prices, the market is in contango.

When current prices are higher than prices expected in the future, the market is said to be in backwardation.

http://www.eia.doe.gov/pub/oil_gas/petroleum/presentations/1999/high_propane_stocks/sld017.htm

See also:

http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/oil_market_basics/stocks_text.htm

50 posted on 05/16/2009 8:53:44 AM PDT by thackney (life is fragile, handle with prayer)
[ Post Reply | Private Reply | To 39 | View Replies]


Navigation: use the links below to view more comments.
first 1-5051-54 next last

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson