Almost no one talked about it but the WSJ ran an article about 2 weeks ago talking about world oil storage capacity. Hadn't considered this? Well, turns out oil storage is (A) cheap (B) filling up. Article said in about 6 months, available storage is going to be full based on current RISING levels. This was complete news to me (as I thought like everyone that demand was way outstripping supply.) But, you continually hear traders talking about (and a government report provided the same info) a approx $20/gal speculation premium in the current price of oil. Why would speculation add a $20 premium? In commodity speculation, the fear of taking delivery (who wants 1000 head of cattle) balances the ability to buy and hold. If oil storage really is available and cheap -- then the fear of taking delivery is alleviated and the sell pressure for commodity traders isn't in balance. This creates a market aberration where artificially supply is removed from the market by storage... This very nicely explains a $X speculation premium in the market. It doesn't take much then to theorize what's going to happen in 4-6 months (less obviously if demand actually decreases!) The suppliers of oil storage will raise prices as storage becomes scarce (that's just supply and demand.) Then, two things will happen, significantly more oil will go straight into the market as traders will not want to store it. But compounding the supply glut, oil already in storage will actively go into the market because it won't be cheap to store it any more... Suddenly, you have significantly more oil flooding the market and your going to see prices drop. What do you think? Also, anyone smarter than me think of a way to profit from this (assuming I'm right) when all my assets are tied up in 401K? (Or a small business or a house.... Just not very liquid at the moment!) Discuss!
Isn't the natural gas market in the same spot, so to speak, with scarcity of storage causing nearby prices to fall sharply versus back months? Correct me if my causality is off.
He made up that up on his 85th b-day. The old man also drilled a drilling co into the ground when oil was too cheap for its margins. Anyone who goes on tv regularly with price targets in the sky is unloading boatloads but thanks to the viewers he can die filthy rich. BTW, who still waiting for $90 bb and $4 at the pump?
How do you know that traders are taking delivery of the oil? And if this is the case, and the alleged excess oil does go into the market, then where is it going to go? Refining capacity is at full tilt boogie. I don't know of any shortages currently of any major petroleum product, do you? The best storage place for oil is in mother nature, as the Arabs know. Incidentally, who writes up the oil futures contracts that trade on NYMEX, the major producers/importers?