Crude Oil Market Is Not All It Seems
Anyone watching the news Friday night, or picking up a newspaper Saturday may well have heard that crude oil was down below $35/barrel. Well it kind of was & then again it wasn't.
The January crude future was expiring Friday, leaving the board at $33.87/barrel.
Effectively what happened was that long-holders got squeezed out on the last day, unable to take delivery due to storage problems at Cushing, Oklahoma - the delivery point for West Texas Intermediate Crude. In contrast the February contract closed at $42.34/barrel.
With forward prices significantly higher than spot levels, storing oil is a no-brainer. If you have the money & the space that is.
Buy crude on Friday at $35/barrel, sell Jan '10 at $55/barrel, $20/barrel less storage and financing (each said to be around 35c/month). Robert is indeed your uncle, and Fanny your very favourite aunt. It's got to be good to be in the oil storage business at the moment.
It's no wonder that storage levels at tank farms in Cushing are approaching their all-time record level of 28 million barrels, with levels up by 4.7 million barrels this past week alone. And also no wonder total US crude supplies are running at such high levels. Cushing isn't the only storage facility overflowing with oil.
With freight rates through the floor, and commercial storage so tight, dozens of supertankers, full of crude oil, are going nowhere anchored in the Gulf of Mexico, the Far East and even off the coast of the UK.
Royal Dutch Shell Plc sees so much potential in the strategy that it anchored a supertanker holding as much as $80 million of oil off the UK to take advantage of higher prices for future delivery, according to Bloomberg.
It's a situation, traders say, reminiscent of the last time crude prices set a major bottom at around $10/barrel in the late 90's.
The January crude future was expiring Friday, leaving the board at $33.87/barrel.
Effectively what happened was that long-holders got squeezed out on the last day, unable to take delivery due to storage problems at Cushing, Oklahoma - the delivery point for West Texas Intermediate Crude. In contrast the February contract closed at $42.34/barrel.
With forward prices significantly higher than spot levels, storing oil is a no-brainer. If you have the money & the space that is.
Buy crude on Friday at $35/barrel, sell Jan '10 at $55/barrel, $20/barrel less storage and financing (each said to be around 35c/month). Robert is indeed your uncle, and Fanny your very favourite aunt. It's got to be good to be in the oil storage business at the moment.
It's no wonder that storage levels at tank farms in Cushing are approaching their all-time record level of 28 million barrels, with levels up by 4.7 million barrels this past week alone. And also no wonder total US crude supplies are running at such high levels. Cushing isn't the only storage facility overflowing with oil.
With freight rates through the floor, and commercial storage so tight, dozens of supertankers, full of crude oil, are going nowhere anchored in the Gulf of Mexico, the Far East and even off the coast of the UK.
Royal Dutch Shell Plc sees so much potential in the strategy that it anchored a supertanker holding as much as $80 million of oil off the UK to take advantage of higher prices for future delivery, according to Bloomberg.
It's a situation, traders say, reminiscent of the last time crude prices set a major bottom at around $10/barrel in the late 90's.
