sabre_jenn

Does Crude's Price Reflect Reality?

The author clearly has no idea about crude oil markets -- he sounds just as foolish and uninformed as the corrupt members of Congress who spout the same nonsense.

1) The Federal Reserve has trashed the dollar in the last 9-10 years, meaning "the" price of oil denominated in worthless dollars is going to be much higher

2) OPEC has 2000-2002 levels of surplus capacity, but non-OPEC suppliers have little if any surplus capacity. If the author would stop parroting Congress and read about the North Sea fields or Cantarell in Mexico, he would know this. The author clearly doesn't follow even the oil headlines in mainstream news much less oil industry publications

3) Even in a recession, oil demand is higher world wide than it was in 2000. More of the demand at the margin is coming from emerging markets

4) The entire discussion of "the" price of oil betrays total ignorance -- there isn't one price for oil because oil is not a commodity, there are many different grades and location is important.

"The" price quoted by the author is for West Texas Intermediate crude oil passing through Cushing, OK. So when a refinery in Cushing has a major accident and has to dump its inventory-- WTI futures prices collapsed to the mid-high $30s. When that refinery came back on line, there was a "sudden new source" of demand that forced the futures price back up. Ignorant authors and members of Congress would know this if they simply read the weekly report from the Dept of Energy.... Heck, Congress members from Oklahoma couls actually visit their state once in a while... But rational thinking doesn't get any TV time in a country dominated by fools.

WTI is light, sweet crude that is very easy and cheap to refine. Saudi oil is heavier and more sour -- making it more difficult and costly to refine. WTI (and Brent crude from the North Sea) make up a much smaller percentage of the total crude in world markets than 10yrs ago. Refineries are bidding up the price of WTI and mixing it with the heavy sour crude to create a mix that is easier for them to refine.

Many emerging economies understand the subtleties of crude oil, but the US does not. Our education system has failed us; decision making is increasingly based on ignorance and hysteria; and any honest assessment would have to mention that "leadership" in the US has become an oxymoron (Bush, Obama, Pelosi, Franks, Paulson, Geithner, or any CEO you can name -- they are all the same)

It's the Oil Carry, Not the Contango

Brad Zigler: "As the chart title indicates, that's the quarterly (3-month) carry forward from the spot contract.

Storage is figured at 80 basis points per month and financing at 200 basis points over LIBOR. "

What? The words "80 basis points" do not appear anywhere in your article

If you had mentioned it (now that you have) -- 80 basis points of what? Are you claiming that storage costs are a function of the price of oil and not the availability of storage?

It's the Oil Carry, Not the Contango

What is your chart showing us? Is that carry cost per month, per quarter, per year? What assumptions are you making on storage costs? (land / offshore, tank / salt dome / etc)