The Oil Drum | A little more updating of information

56 comments on A little more updating of information

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MicroHydro on November 28, 2006 - 6:40am

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

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

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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