Investment banks hoarding oil
Fifty million barrels of oil are just sitting around on supertankers. They're not getting unloaded because investors are waiting for the price of oil to go up. Mitchell Hartman explains.
Oil Barrels (Ali Al-Saadi/AFP/Getty Images)
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TEXT OF STORY
Bob Moon: Now here are some millions that haven't raised the ire of Congress -- 50 million... Barrels of oil. They're sloshing around on huge supertankers right now. They're not going into port, not getting unloaded. They're just waiting, for the price of oil to go up. It's a financial play known as "contango." A lot of investors are getting into the act. Marketplace's Mitchell Hartman explains.
Mitchell Hartman: "Contango" refers to a market condition in which the future price of a commodity is higher than the cost of buying it today. Right now, investors can lock in oil futures contracts to get paid $46 a barrel in March. They can fill a supertanker right now for just $41 and change. It's pretty cheap to keep the tanker floating around in the ocean. When it unloads in the spring, the investors make a tidy profit: more than $3 a barrel.
Daniel Yergin is author of the Pulitzer-winning book, "The Prize." He says there's a glut of oil right now, caused by the global recession. But futures prices are going higher, because OPEC has promised to cut production. And, says Yergin, oil traders are reading something else in the economic tea leaves.
Daniel Yergin: There's a bet here that all of the stimulus, new economic programs, are going to work, and that by the second half of the year, we're going to move out of recession, back into economic recovery, and that demand will start rising for oil again.
But, says Fred Doll, a shipping consultant based in London, parking all that oil offshore could roil the market all over again.
Fred Doll: There is one thing to keep in mind though, there's no free lunch. And at some point all that oil that is in storage on tankers will be released to the market again.
When that happens -- dozens of supertankers steaming into port in the spring full of crude -- there could be an oil glut again, setting off a new round of investors "doing the contango."
I'm Mitchell Hartman for Marketplace.
Comments
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From killingworth, CT, 01/22/2009
As a geologist, unless the world production is at peak oil, hoarding oil on shore or in tankers offshore is no different than hoarding oil in the ground (already discovered oil reserves ready to be pumped into tankers).
From Sunnyvale, CA, 01/13/2009
Interesting story. However, my colleague who covers oil and raw materials, wrote a post linking to this that essentially states that contango (and the myriad of other headline grabbing stories about oil) won't impact the fundamental pricing of oil, which is being hit hard by sluggish demand. If you're interested, the link is http://www.supplyexcellence.com/blog/2009/01/13/oil-price-fundamentals-contango-opec/
01/11/2009
It does sound like a great idea. But once going into detail, an investor must think of his available alternatives! If we were talking 12 months ago, I wouldn't hesitate. Today, the situation has created so many discrepancies, one must think if this is the best way to deploy capital. Once all the fee's add up it doesn't leave much of a kick.
01/10/2009
This is an interesting piece and makes one think that this is soemthing that the government should fix. I then wondered how any weeks of demand does 50 Million barrels represent. Turns out that this is less then a day of global demand and just two days of US demand. Looking at it that way one wonders really why this is an issue at all. When discussing this type of story it ought to be framed in the proper context.
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