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

Gold Seeker Closing Report: Gold Gains While Stocks Fall Markedly
By: Chris Mullen, Gold Seeker Report

Ira Epstein's Metals Video 10 18 2018
By: Ira Epstein

The Incredibly Bullish Set-Up for Gold
By: Michael Ballanger

End of the World – Part One
By: Gary Christenson

The Weighted Average Cost Of Capital
By: Adam Taggart

Gold Would Not Enjoy That FOMC Is Going More Restrictive
By: Arkadiusz Sieron

Are You An Investor Being Set Up For The Slaughter?
By: Avi Gilburt

How Do You Sell Your Vaulted Gold When the Internet Goes Down?
By: GoldCore

Gold Seeker Closing Report: Gold and Silver Edge Lower Again
By: Chris Mullen, Gold Seeker Report

GoldSeek Radio Nugget: President Niko Cacos, CEO, and Director of Blue Sky Uranium Corp. and Chris Waltzek
By: radio.GoldSeek.com

 
Search

GoldSeek Web

 
An oil glut doesn’t preclude an oil price bottom


 -- Published: Wednesday, 24 February 2016 | Print  | Disqus 

By Steve Saville, The Speculative Investor

I don’t need to read/watch the news to know that the supply-demand backdrop remains unsupportive for the oil price. All I have to do is look at the spread between spot prices and futures prices in the oil market. The larger the contango, that is, the higher the futures price relative to the spot price, the more abundant the current supply and the less price-supportive the so-called ‘fundamentals’.

As recently as a few days ago, oil for delivery in July-2016 was $6.40/barrel, or about 20%, more expensive than oil for immediate delivery onto the cash market. This was very unusual. It meant that if someone could buy physical oil and store it cheaply they could make a risk-free annualised return of almost 40% by simultaneously selling July futures contracts. The reason that every man and his dog was not eager to do this trade is that the cost of storing oil is now so high that even a contango that represents a potential 40% annualised return on a physical-futures arbitrage is not very profitable. And the reason that the cost of storing oil is now so high is that there is a much-greater-than-normal amount of oil already in storage.

Unfortunately, knowing that there is an oil glut and, therefore, that the ‘fundamentals’ remain bearish doesn’t tell us what will happen to the oil price in the future. This is because the bearish fundamentals are very well known and are factored into the current price. It is also because the fundamentals are always bearish at major price bottoms in commodities markets.

I suspect that the oil price is now close to a major bottom. This is because at its recent low the “inflation”-adjusted oil price was below its 1986 bottom and almost as low as its 1998 bottom (the two lowest points of the past 40 years). It is also because if stock markets have made long-term peaks then the commodities markets are likely to be among the main beneficiaries of future monetary inflation.

However, it’s very unlikely that there will be a ‘V’ bottom in the oil market. Considering the short-term positive correlation between the oil price and the S&P500 Index (see chart below) and the well-known bearish fundamentals, it’s more likely that the oil market will build a base this year involving a Q1 bottom and one or two successful tests of the bottom.

oil_SPX_220216

http://tsi-blog.com/


| Digg This Article
 -- Published: Wednesday, 24 February 2016 | 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 - 2018



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.