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Bloomberg - Davos - 30th January
OPEC has already cut production twice to little effect. This has created a contango in the crude oil market. Oil purchased Friday for $41.68 a barrel could immediately be sold through a forward contract for September delivery at a price of $52.85 a barrel. That’s a gross profit of 25% or more than $11 per barrel before storage costs.
In all probability it is this contango that is helping to create a (thus far) solid floor for the oil price at $40 plus. Lack of demand may push the price lower but that would engender an immediate retalitory response from OPEC, keeping the price high.
There is also a glut of crude oil sailing slowly around the Shetlands or parked up in tankers off Louisiana. However with the cost of at sea storage being less than a dollar per barrel per month,
oil bought at todays price and immediately sold for September delivery will garner a profit of $4 per barrel.
So how to benefit from this? The leading ETF is the United States Oil fund (USO). It seeks to reflect the performance, less expenses, of the spot price of West Texas Intermediate (WTI) light, sweet crude oil. The fund will invest in futures contracts for WTI light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas and other petroleum based-fuels that are traded on exchanges. It may also invest in other oil interests such as cash-settled options on oil futures contracts, forward contracts for oil, and OTC transactions that are based on the price of oil. The fund is nondiversified.
The price of oil today reflects a recession and a global slowdown. In two years the price will probably be much higher due to greater demand and much lower production. The cost of a barrel of oil may well continue to drop but an opportunity now exists for long term profits.
In this situation, the investors best friend may prove to be the suffering property developers of Dubai.
Abdalla el-Badri, OPEC secretary- general, said $70 to $90 a barrel is a “reasonable” oil price to support investment in new production.
“It’s a reasonable price where we can invest and that’s the most important thing for the world,” el-Badri said in a television interview at the World Economic Forum in Davos today. “We control 75 to 80 percent of the world reserves, we need to develop that reserve so we can have more supply to the world.”
"El-Badri said Opec members would have reached the group's pledge of a drop of 4.2 million barrels a day by the end of January.
After that "if we still have some downward problems, then Opec will not hesitate to take some quantity out of the market," he said".
Nobody is expecting a 73 style oil crisis but the crash in the oil price is hurting the oil producing nations. In Russia this weekend, there were violent protests over rising unemployment and food prices. It's not being discussed much at the moment, but even in the oil rich gulf, there are mass lay offs and retrenchment of skilled staff. Property prices are falling California style. The truth is, is that most of these nations require an oil price north of $50 per barrel just to maintain the status quo.OPEC has already cut production twice to little effect. This has created a contango in the crude oil market. Oil purchased Friday for $41.68 a barrel could immediately be sold through a forward contract for September delivery at a price of $52.85 a barrel. That’s a gross profit of 25% or more than $11 per barrel before storage costs.
In all probability it is this contango that is helping to create a (thus far) solid floor for the oil price at $40 plus. Lack of demand may push the price lower but that would engender an immediate retalitory response from OPEC, keeping the price high.
There is also a glut of crude oil sailing slowly around the Shetlands or parked up in tankers off Louisiana. However with the cost of at sea storage being less than a dollar per barrel per month,
oil bought at todays price and immediately sold for September delivery will garner a profit of $4 per barrel.
So how to benefit from this? The leading ETF is the United States Oil fund (USO). It seeks to reflect the performance, less expenses, of the spot price of West Texas Intermediate (WTI) light, sweet crude oil. The fund will invest in futures contracts for WTI light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas and other petroleum based-fuels that are traded on exchanges. It may also invest in other oil interests such as cash-settled options on oil futures contracts, forward contracts for oil, and OTC transactions that are based on the price of oil. The fund is nondiversified.
The price of oil today reflects a recession and a global slowdown. In two years the price will probably be much higher due to greater demand and much lower production. The cost of a barrel of oil may well continue to drop but an opportunity now exists for long term profits.
In this situation, the investors best friend may prove to be the suffering property developers of Dubai.
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