Crude Fundamentals

Discussion in 'Commodity Futures' started by contango, Oct 19, 2006.

  1. contango

    contango

    I think we've seen a healthy return to some fundamentals in the crude market and hopefully the hedge fund 'gurus' have learnt a few lessons along the way... When I said way back around the time of Hurricane Ernesto that crude was going down I had no idea it would go down so much so quickly.

    But fundmentally, wells have to keep pumping or they get shut in. Cargoes therefore need to keep loading and shifting the stuff across the sea. Storage at disport is filling up rapidly and prices for storage are heading north. See the fwd curve monthly differentials changing... No-one wants the stuff but it has to keep coming out. One physical crude trader told me it was a 'meltdown'
    with no immediate end in sight.

    It used to be that refineries were cheap and freight was limited so you shipped crude and refined at home. Now the trend is changing longer term to shipping products and refining at source where there's also cheaper storage and less ownership risk...

    OPEC is virtually powerless to affect the price because they have to keep the bank open and keep pumping the stuff out. The only problem is that lower prices will impact on further renewables development and renewable is what will eventually kill off crude demand. So lower prices mean crude has earned itself a slightly longer lifespan.