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Vet67to82 (< 20)

Crude and the "Contango: for tomorrow

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January 27, 2009 – Comments (1) | RELATED TICKERS: XOM , DHT , DXO.DL.DL2

  I know the headlines.  Worried about another SURPRISE increase in the US EIA report for tomorrow?  The "talking heads" always focus on the trees ... never seeming to see the forest, and certainly not reporting on it.   The talking heads new buzzzzz word is "demand"  and new buzzzz phrase "demand is falling".   Magicians get away with it by getting you to focus where they want you watch and not where they're pulling off the trick.  Scam artists too.  Could Madoff have gotten away with his fraud for so long if his investors looked at the whole forest, instead of the individual trees Madoff was pointing to?

  Whatever the US EIA report says tomorrow, ask yourself: Where is the info on the tankers being used for storage?  Anything in the US EIA report?   Anything from the talking heads?  Why not?  33 tankers holding 60 to 80 million barrels of crude, when Cushing is holding a bit more than 33 million barrels seems important to me.  

   Plus, when the "talking heads"  keep rambling on (got your attention)  about the March crude price ... there is a futures price for EVERY month, how about giving info on a month further out?   Is it 'cuz the news isn't as bad .... gee, can't sell advertising with "good" news?

   CLH9    NYMEX Crude Oil   41.95    -3.78      -8.2660   March 2009
  
   CLH10                                56.86   -1.22                      Mar 2010  (as of Monday 1/26/2009)
   CLG10                                56.38   -1.27                      Feb  2010 
   CLF10                                 55.86   -1.22                      Jan  2010

   Wow, look at that CLF10  (Jan  2010) is $13.91 out of whack to CLH9 (Mar 2009).  Yes, I'm comparing today with yesterday to make a point.   If someone is selling you a 500 piece picture puzzle, shouldn't you GET 500 pieces?  You should demand it.    

(1) Demand may continue to fall, but, OPEC is going to continue to reduce output to force non-OPEC countries to draw down their inventory. You can bet, with 100% certainty, that OPEC production cuts will be overdone to the downside AND OPEC won't be in a hurry to increase producton until OPEC gets ABOVE its target price.

(2) Each time the near month drops ... watch the far months. Did the far months drop as much? If they didn't then the "manipulators" we're all so fond of talking about have successfully widened the contango spread. The few make tons of money vs the many.

(3) the 33 ships now used for storage instead of transport will likely increase in number due to the contango, resulting in higher spot market day rates for the remaining ships ... THIS, the number of ships in storage mode, is more important than the US EIA report !!!! The lenght of the leases indicates they're taking up demand slack that might have driven crude lower.

   I've been aware of the "Contango" since my blog: Crude Supply and Shipping  -  Dec 17, 2008

  For more info on the contango and the leased ships I also suggest reading my other blogs:   

Crude and the "Contango" for 1/28/2009   - Jan 26, 2009

Did I Get IT Right?   - Jan 22, 2009

Crude Supply, Shipping and the Contango for tomorrow 1/22/2009  - Jan 21, 2009

 

 

1 Comments – Post Your Own

#1) On January 28, 2009 at 11:03 AM, binve (< 20) wrote:

Vet, I have read the last few blogs of yours on this subject and I think you are right on the money. I put a post out on Jan 7 (Short Term Oil) and another one on Jan 23 (Short Term Oil - Update) looking at the technical picture of oil. And I think you have the best take on the fundamentals driving the near term future price action. Please feel free to check these posts out. Great insight, I have added you as a favorite! Thanks!

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