Contango is the discount you can get on a non-perishable commodity by virtue of your willingness to accept delivery at once, or (stated inversely) the extra payment you make if you want the seller to hold it for you for some interim.
As I noted in a post on the subject I wrote here in January, the per barrel price of oil at that time was $46.47 for March delivery. That is as immediate a delivery as Nymex listings will get you. Going out further, a barrel for August 2009 delivery went for $53.81. So the contango for that five-month period was $7.34, or $17.64 annualized, or 38% annualized and stated as a percentage of the value of the barrel. That seemed historically very high and I wondered about the reasons in that January post.
Six months later, the price is up, however one measures it. But let's maintain our focus on contango. Crude oil for July delivery (essentialy the spot price) is at $72.68 a gallon, looking at the "most recent settle" at Nymex. Going out five months, a barrel to be delivered in December costs $76.12. This is a contango of a modest $3.44, or $8.26 (11.4%) annualized.
Why has the contango dropped so drastically?
Presumably this means that in January oil was being held offshore in tankers, and now it is being released into the market. That would make the on-tanker storage space less valuable and bring down its price.
That's the theme of the Izabella Kaminski blog entry to which I've linked you, and she has further facts and numbers.
It doesn't sound as if the recent price incraeses are the result of price machinations. It seems as if the refineries ran through their backlog and are now closer to being current than they were in January, yet demand or anticipated demand is great enough to move prices up even while crude is moving onshore.
That would be good news in terms of a recovery, although as I've indicated before the recovery in question is the inflation-stoked and inflation-soaked sort that will bring more than its own share of problems.
Showing posts with label refineries. Show all posts
Showing posts with label refineries. Show all posts
12 June 2009
02 July 2007
Iran and Petroleum
There have been riots in Iran in recent days over the rationing of gasoline.
Accounts have differed wildly. Perhaps 20 gasoline stations were attacked by rioters. Perhaps as many as 50.
Perhaps there have been no deaths. Perhaps there have been three.
But that there has been unrest is clear through the haze, and it makes the point that gasoline isn't a raw material -- it is the product of industry, of a refining. The critical variable isn't the per-barrel price of crude we hear about so often (or isn't always that, anyway) but refinery capacity.
One is reminded of the Shah's pre-revolutionary regime, which likewise sought to plan its way into status as a front-rank industrial power. Central planning doesn't work, and when the central planners are overthrown by a revolution, and the revolutionaries try a somewhat different style of central planning ... it still doesn't work.
Accounts have differed wildly. Perhaps 20 gasoline stations were attacked by rioters. Perhaps as many as 50.
Perhaps there have been no deaths. Perhaps there have been three.
But that there has been unrest is clear through the haze, and it makes the point that gasoline isn't a raw material -- it is the product of industry, of a refining. The critical variable isn't the per-barrel price of crude we hear about so often (or isn't always that, anyway) but refinery capacity.
One is reminded of the Shah's pre-revolutionary regime, which likewise sought to plan its way into status as a front-rank industrial power. Central planning doesn't work, and when the central planners are overthrown by a revolution, and the revolutionaries try a somewhat different style of central planning ... it still doesn't work.
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