Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

GoldSeek Radio: Peter Schiff and Bob Hoye, and Chris Waltzek
By: radio.GoldSeek.com

Technical Scoop - Weekend Update May 28
By: David Chapman

Getting Rich On Taxpayer-Backed Subprime Mortgages
By: Dave Kranzler

How Do You Make Money With A Broken Clock?
By: Avi Gilburt

High Yield Train Wreck
By: John Mauldin

Gold, US Stocks and Bonds
By: Gary Tanashian

The Next Populist Political Issue Emerges: CEO Pay
By: John Rubino

Does Your Pension Fund Have Enough Gold
By: David Morgan

Gold Seeker Weekly Wrap-Up: Gold and Silver Find Slight Gains on the Week
By: Chris Mullen, Gold Seeker Report

Ira Epstein's Metals Video 5 25 2018
By: Ira Epstein

 
Search

GoldSeek Web

 
Crude Oil Supply and Demand


 -- Published: Monday, 12 January 2015 | Print  | Disqus 

By Keith Weiner

We don’t normally analyze the crude oil market. However, there has been a huge price move (which may not be complete yet). With the endless rumors of deals that explain the move, we thought we would look at the spreads. The data shows a startling picture.

You should approach supply and demand in this market similarly to gold and silver. The difference is that there is very little inventory buffered in the system. Notwithstanding what you read about China “buying up” the oil to take advantage of “cheap” prices, oil requires specialized storage facilities. There is a significant cost to store it, and finite capacity too.

Below is a 3D graph of the futures curve taken at various times, from before the crash through January 9. Each line represents the curve at a given moment. Red lines are where there is backwardation. Yellow is a flat curve. And green indicates contango. Unlike our regular Supply and Demand Report for gold and silver, this shows just the price of various futures contracts and does not compare to the spot price. So here, backwardation is when a farther-out contract is cheaper than a nearer one. Contango is when the nearer one is cheaper. As with the monetary metals, backwardation is a sign of shortage, and contango is a sign of adequate or abundant supply.

You can see backwardation from May through September, with a gradual lessening of the slope. What really stands out is that, abruptly, the backwardation disappeared.

Here is another graph, showing the total spread included in each future curve (measured in dollars per barrel).

In May, there was nearly a $5 premium of the near contact over the distant contract. Now, there is over a $3 premium for the distant one. That is a picture of a market in shortage turning into a market without a shortage.

Contango is normal. It costs to store oil, and so if you want someone to deliver it to you 7 months out, you will have to pay him to cover this cost plus a profit. Otherwise why should he do that for you? When you buy a futures contract, that is what you are ordering—storage and delivery on a date.

Here is a graph of the price. The correlation to the changing spread is obvious.

The price of oil peaked in June, and began falling thereafter. The drop picked up a little speed in August but the plunge didn’t begin until October. That happens to be when the shortage subsided.

A trend is clear in the spring and summer, and it accelerated in the fall. Either supply increased or demand decreased. We leave it to oil experts to say which, and why.

 

© 2015 Monetary Metals


| Digg This Article
 -- Published: Monday, 12 January 2015 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.