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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
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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.)
To: netmilsmom
We just bought a Suburban to haul our camper, so I am in agreement with you!
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.
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)
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)
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)
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.
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)
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)
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.)
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)
To: Kartographer
That “Star” belongs to Hugo Chavez....
32
posted on
05/15/2009 1:28:00 PM PDT
by
pointsal
To: TigerLikesRooster
33
posted on
05/15/2009 2:37:59 PM PDT
by
GOPJ
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
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)
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
To: pistolpetestoys
Baraq’s fault.
Shout it to the housetops!
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)
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)
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)
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