Crude and the "Contango: for tomorrow
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