Re Price of Oil: ‘You’d be an idiot not to take advantage of that’
A massive drop in oil today intensified the current situation where the short-term price of oil is dramatically lower than the long-term. Crude oil for February delivery fell 12% today to around $43 a barrel. This is in contrast to the futures price for February of next year, which is 41% higher. This price phenomenon is known as “contango.”
As we mentioned this morning, this has created a situation where traders are buying up oil today to store on rented supertankers, in order to re-sell it in the future. Although massive amounts of oil is being hoarded, there is still global storage capacity remaining.
While inventories at Cushing, Oklahoma, one of the largest crude storage facilities in the U.S., are at the highest levels since April 2004 (when the Energy Department began tracking the supplies there) there is still some space for more.
Reuters quotes Lawrence Eagles, global head of commodities research at JPMorgan Chase as stating, “We’re pushing up toward capacity limits. There’s still a bit of space, but not much.”
Tom Knight, trading director at Truman Arnold Cos. in Texarkana, Texas, puts it more bluntly, “It’s not a surprise we’re building inventories. Look at the contango. You’d be an idiot not to take advantage of that.”
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- Supertankers Being Used to Store Crude at Sea for Delivery When High Prices Return
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