Almost no one talked about it but the WSJ ran an article about 2 weeks ago talking about world oil storage capacity. Hadn't considered this? Well, turns out oil storage is (A) cheap (B) filling up. Article said in about 6 months, available storage is going to be full based on current RISING levels.
This was complete news to me (as I thought like everyone that demand was way outstripping supply.) But, you continually hear traders talking about (and a government report provided the same info) a approx $20/gal speculation premium in the current price of oil. Why would speculation add a $20 premium?
In commodity speculation, the fear of taking delivery (who wants 1000 head of cattle) balances the ability to buy and hold. If oil storage really is available and cheap -- then the fear of taking delivery is alleviated and the sell pressure for commodity traders isn't in balance. This creates a market aberration where artificially supply is removed from the market by storage... This very nicely explains a $X speculation premium in the market.
It doesn't take much then to theorize what's going to happen in 4-6 months (less obviously if demand actually decreases!) The suppliers of oil storage will raise prices as storage becomes scarce (that's just supply and demand.) Then, two things will happen, significantly more oil will go straight into the market as traders will not want to store it. But compounding the supply glut, oil already in storage will actively go into the market because it won't be cheap to store it any more... Suddenly, you have significantly more oil flooding the market and your going to see prices drop.
What do you think? Also, anyone smarter than me think of a way to profit from this (assuming I'm right) when all my assets are tied up in 401K? (Or a small business or a house.... Just not very liquid at the moment!)
Discuss!
This was complete news to me (as I thought like everyone that demand was way outstripping supply.) But, you continually hear traders talking about (and a government report provided the same info) a approx $20/gal speculation premium in the current price of oil. Why would speculation add a $20 premium?
In commodity speculation, the fear of taking delivery (who wants 1000 head of cattle) balances the ability to buy and hold. If oil storage really is available and cheap -- then the fear of taking delivery is alleviated and the sell pressure for commodity traders isn't in balance. This creates a market aberration where artificially supply is removed from the market by storage... This very nicely explains a $X speculation premium in the market.
It doesn't take much then to theorize what's going to happen in 4-6 months (less obviously if demand actually decreases!) The suppliers of oil storage will raise prices as storage becomes scarce (that's just supply and demand.) Then, two things will happen, significantly more oil will go straight into the market as traders will not want to store it. But compounding the supply glut, oil already in storage will actively go into the market because it won't be cheap to store it any more... Suddenly, you have significantly more oil flooding the market and your going to see prices drop.
What do you think? Also, anyone smarter than me think of a way to profit from this (assuming I'm right) when all my assets are tied up in 401K? (Or a small business or a house.... Just not very liquid at the moment!)
Discuss!