oiler1930

The Ghost of Crude Oil Futures (Part 1/2)

The runup in oil prices was funded by the big commodity index funds as a part of their portfolios. when the housing bubble broke, they were forced to sell everything to retrieve capital. The effect was comparable to a night club fire; everyone runs to the exit,and get caught. Like clock work, every month the nearby positions were rolled forward to future postions, which explains the contango. some money is flowing back in, where forward contracts nearby jump $2 above its predecessor, before getting less wild in the more distant futures.

I operate a small lease that raises four millionths of our domestic input (0.0004%). My lifting costs run $25/bbl; the new offshore oil is expected to cost $50-75 per bbl. The analysis above that shows lower costs neglects these facts.