Oil Decline Saga

asr: 12/19/09 story of "oil storage shortage" shows, all the possible 'storage' will be used to take advantage of $9 spread Mar09/Feb09 contract.
- it seems gasoline stock piles increase casued today drop of $1.50 , see bloomberg story below, also the Cushing delivary point has no storage available for traders to take physical deliary ( see post below )
- so one can conclude 'US gov. report stock pile increase in the coming weeks, depending on how long it takes to take delivary and store.
- so for 'US govt. stock piles" point of view , it puts pressure on price before 'stock pile data release, so one can expect a crude price drop a day before .. or at best stays same ...
- look at contacting research instute below to find out 'storage costs' , it seems this situation may continue for months to come
- find bank financing with 'crude physical' as collateral to take physical delivary ( needs 33k for each contract since 1000 barrel
- (44.5 - 33.5 ) => $9 that is 20% margin for 1 month. you make loss only Mar09 price at contract expiration drops below (33.5 - profit -cost ) => 33.5 - 9 => 25 , only price below $25 is loss to you
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2:07 p.m. EST Dec. 24, 2008
Crude inventories at Cushing, Okla., the delivery point for crude futures contracts traded on the New York Mercantile Exchange, reached 28.7 million barrels in the week ended Dec. 19, the Energy Information Administration reported.
It was the highest since at least April 2004, when the government started collecting Cushing data. This served to overshadow the government's latest weekly reading on petroleum stockpiles.
"The downward pressure in oil prices is from the exceptionally high stocks of oil at Cushing, although total crude inventories fell," said James Williams of WTRG Economics. "People pay more attention to Cushing inventories."

one user comment explained:
If Cushing fills up, the front-month NYMEX oil futures will go down real far, real fast, regardless of what the "actual" fundamentals might be outside of a few hundred mile radius. No traders will be able to take delivery of the oil as they would need to pay an arm and a leg for storage. Long positions will need to be liquidated to avoid delivery. Market participants who have access to transportation to get the oil out of Cushing (possibly out of the U.S.) to a remote storage site will be the only ones buying.



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December 24, 2008 10:50 EST
Dec. 24 (Bloomberg) -- Crude oil futures fell after a U.S. government report showed a bigger-than-expected increase in supplies of gasoline, heating oil and diesel.

Gasoline inventories rose 3.34 million barrels to 207.3 million barrels in the week ended Dec. 19, the Energy Department said today in a weekly report. Stockpiles were forecast to increase by 750,000 barrels, according to the median of analyst estimates in a Bloomberg News survey.

Distillate supplies, which include heating oil and diesel, climbed 1.81 million barrels to 135.3 million barrels. Stockpiles were forecast to increase by 700,000 barrels.

Inventories of crude oil fell 3.1 million barrels to 318.2 million, the department said. Supplies were forecast to rise by 500,000 barrels.

Crude oil for February delivery fell $1.52, or 3.9 percent, to $37.46 a barrel at 10:37 a.m. on the New York Mercantile Exchange.


Updated: December 24, 2008 07:35 EST
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Crude stockpiles probably increased 500,000 barrels in the week ended Dec. 19 from 321.3 million the week before, the 12th gain in 13 weeks, according to a Bloomberg survey before today’s Energy Department report.

Oil for delivery in February 2010 was more than $14 higher than the current month today, a market condition known as contango. The pattern encourages companies to store oil.

“The contango means the inventories are increasing,” said Tetsu Emori, a commodity fund manager at Astmax Ltd. in Tokyo. “More-than-adequate levels of inventories will push prices down. It’s a very, very bearish sign.”



Friday December 19, 6:21 pm ET
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Glut of oil creates short-term storage problems
Big premium for oil -- that doesn't have to be delivered right away

Traders locking up storage space for crude created a huge rift in prices Friday between oil that must be delivered in several weeks and oil that can be taken in February.

The January contract for crude expired Friday and with stockpiles rising at the key storage facility in Cushing, Okla., the price dropped close to a five-year low as brokers and traders attempted to unload supply for whatever price they could get.

"If you could find storage for it, it's a way to get rich real quickly," said Peter Beutel, an analyst with Cameron Hanover.

With space tight amid a glut in supply, light, sweet crude for January delivery fell $2.35 to settle at $33.87, a level last seen in early 2004.

Most traders focused on the February contract, however, which rose 69 cents to settle at $42.36 a barrel on the New York Mercantile Exchange. Because crude contracts bought for February also bought more time to find storage, it sold at a premium of more than $7 a barrel compared contracts expiring Friday.