Oil Going To Over Supply?
Mish has a different kind of post on oil.
Oil price has not behaved the way I anticipated, however, this article suggests that oil supply has behaved as I anticipated.
Iran lacks enough storage for their oil supply so they are buying super tankers to store it in. Having to buy super tankers to store oil can do nothing but increase the costs of supplying oil for Iran.
Talk about messing up my caps game... These guys are putting pressure on the number of super tankers available, so supply has gone from 56 to 30, tripling the day rental price. What, do they have large interest in these shipping companies? The supply of ships ought to have been out stripping the demand by now. Who'd have thought they'd have turned into storage facilities... That's one way to distort economics...
This is looking like one very periless bubble. In the short term shipping rates more than triple because there isn't supply, and heck, if you are getting $127/barrel for oil, you can afford the shipping rates. However, eventually the costs of storing oil in ships is going to catch up in a not so good way with the practice. Talk about misallocation of resources and that is what happens in bubbles.
"There's a lack of on-land storage" suggests that oil supply is increasing, yet oil prices are not behaving according to true supply and demand fundamentals.
And, with the high oil prices, supply will continue to increase, so Iran will have to cut production, or find more storage, or the price will have to respond to the supply.