<LNG To The Rescue? The Oil Drum DrumBeat: November 28, 2006>

56 comments on A little more updating of information

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MicroHydro on November 28, 2006 - 2:14am Permalink | Subthread | Comments top
Of note, the futures market is placing bets more in line with OG&J than CERA.   The futures have a significant contango.
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sendoilplease on November 28, 2006 - 2:59am Permalink | Subthread | Parent | Comments top
Microhydro, what tells you the futures market is placing bets more in line with OG&J, rather than CERA? I'm just curious what data you might be watching.  It will be interesting to see when the market "wakes up" to peak oil.

If what you say is true, CERA may have noticed this trend too and that might help explain their recent PR assault on the Peak Oil camp.

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MicroHydro on November 28, 2006 - 6:40am Permalink | Subthread | Parent | Comments top
At the moment, Jan 2007 is $60.36 and Dec 2012 is $66.37.  This is not a pricing structure that believes in a future superabundance of oil like a 130mbpd CERA world.  If the traders believed CERA, the 2012 contract would be something under $40.

Now you might ask why the 2012 contract is not $200 or more.  There is a simple answer for that.  When the contango (future price higher) is large, it becomes economic to store commodities for future use or sale.  And that is what is happening, both governments and private interests are increasing inventories.

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khaos3 on November 28, 2006 - 8:37am Permalink | Subthread | Parent | Comments top
While I agree with MicroHydro I would like to point out that  futures contracts going out as far as 2012 are typically thin and IMO have not had much predictive value in the past. Better to take them as a bet on direction of prices as opposed to absolute price levels.
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sendoilplease on November 28, 2006 - 11:40am Permalink | Subthread | Parent | Comments top
Thanks microhydro.  There was a paper presented by Pedro Almeida at ASPO 2005 using essentially your method:

"Peak Oil and the NYMEX Futures Market: Do Investors believe in physical realities" (Abstract)

The authors look at the slope of the curve for Prices on long-dated futures contracts for December delivery, as well as open interest.  

Figure 1 shows the data from 2005 was essentially what you suggest if traders were Not anticipating Peak Oil: a negative slope with declining prices for late-dated contracts. They also note the low open interest as a sign or non-awareness.

IF the slope for the December contracts is now positive and open interest is increasing we might be witnessing the awakening of the Futures market.  

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dinaz on November 28, 2006 - 6:55am Permalink | Subthread | Parent | Comments top
Assuming MH is right - I second this interpretation of CERA's report.

I wonder if someone can give a good explanation of how it is possible for a spot market to respond to long term trends? Is it not the oil in storage - ready for delivery that matters more than actual flow rates in such a market? Are the demands of margin trading, risk of a margin call and a need to keep trading volumes high (because each trade has a small profit) not contrary to adapting to long term trends/risks?
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sendoilplease on November 28, 2006 - 11:48am Permalink | Subthread | Parent | Comments top
For more explanation see the link abstract for ASPO 2005 above.

All the points you make for the risk in long-term contracts are there but you might think of this as the Chinese Approach to oil. Lock up contracts for in-ground oil now using futures because most traders, unlike nations, cannot can make direct contracts with the producing countries.

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56 comments on A little more updating of information

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