Oil Prices

[HitandRun]

The link below seems to indicate US (only) tight oil production is 5.2m bpd.

jm san

I presume you are referring to current production?

The link provided states that:

Supply growth of U.S. light, tight oil will initially slow to a trickle but regain momentum later, bringing production to 5.2 million barrels per day (bpd) by 2020, the IEA said.

[Boon]

The link below seems to indicate US (only) tight oil production is 5.2m bpd.

jm san

I presume you are referring to current production?

The link provided states that:

Supply growth of U.S. light, tight oil will initially slow to a trickle but regain momentum later, bringing production to 5.2 million barrels per day (bpd) by 2020, the IEA said.

Table 5.4 on page 56
http://www.opec.org/opec_web/static_file...y_2015.pdf

2014 = 3.9 million bpd
2015 = 4.5 million bpd (forecast)

[tanjm]

Ok I stand corrected on shale oil output (must admit this time I did the research a bit too quickly for the crystal ball).

Nevertheless it seems likely that shale will continue to be a swing element due to the rapidity with which producers can adjust production. And given that the production volumes are within the demand supply gap.

Demand can also adjust to lower prices. Just this morning I saw a news item about increased use of gasoline by us drivers.

[Temperament]

Amature's View:-
Contango now, so buy and store will make money in future for physical traders. Can contango becomes "tango" (new term opposite of contango)? Then what happens?

It should be "buy and secure a forward contract now, store it, and delivery later". It is no risk of "tango", I reckon. Uncle Temp...

i see oil is treated as a commodity futures too for real physical traders. That's why need all the extra storage. Look like a durian pow chiat trade leh.

[BlueKelah]

And what if opec keeps prices down for longer? Storage is expensive and can be costly if the bet on the upside doesn't work out. Not only pay for the storage cost, have to pay insurance to backup.

-- via Xperia Z1 with tapatalk

[tanjm]

And what if opec keeps prices down for longer? Storage is expensive and can be costly if the bet on the upside doesn't work out. Not only pay for the storage cost, have to pay insurance to backup.

-- via Xperia Z1 with tapatalk

Here's one way.

Enter into forward market to physically sell 1 barrel of WTI at $55 6 mths forward.
Buy 1 barrel of WTI now at $52

Suppose it costs (all in - leasing, insurance, transport costs to delivery location) $0.01 per day to store the oil. Then 6mths of storage is about $1.8. You also forgo interest on the $52 (say 6m treasury is 0.5%). 6m of interest is $0.26

In 6 mths, deliver 1 barrel of WTI at $55. It has cost you $52+1.8+0.26.

What are the risks (its not totally riskless)? mainly counterparty risk. i.e. the risk that the other side will not honor your bet.

[BlueKelah]

And what if opec keeps prices down for longer? Storage is expensive and can be costly if the bet on the upside doesn't work out. Not only pay for the storage cost, have to pay insurance to backup.

-- via Xperia Z1 with tapatalk

Here's one way.

Enter into forward market to physically sell 1 barrel of WTI at $55 6 mths forward.
Buy 1 barrel of WTI now at $52

Suppose it costs (all in - leasing, insurance, transport costs to delivery location) $0.01 per day to store the oil. Then 6mths of storage is about $1.8. You also forgo interest on the $52 (say 6m treasury is 0.5%). 6m of interest is $0.26

In 6 mths, deliver 1 barrel of WTI at $55. It has cost you $52+1.8+0.26.

What are the risks (its not totally riskless)? mainly counterparty risk. i.e. the risk that the other side will not honor your bet.

If price continue to drop lets say to below $50 or less in half year time?

Pretty sure no one's going to buy your big tanker of oil. Picture a line of tankers lining up to sell cheap oil to China

For every upside there is a downside, no such thing as sure bet.

[Temperament]

And what if opec keeps prices down for longer? Storage is expensive and can be costly if the bet on the upside doesn't work out. Not only pay for the storage cost, have to pay insurance to backup.

-- via Xperia Z1 with tapatalk

Here's one way.

Enter into forward market to physically sell 1 barrel of WTI at $55 6 mths forward.
Buy 1 barrel of WTI now at $52

Suppose it costs (all in - leasing, insurance, transport costs to delivery location) $0.01 per day to store the oil. Then 6mths of storage is about $1.8. You also forgo interest on the $52 (say 6m treasury is 0.5%). 6m of interest is $0.26

In 6 mths, deliver 1 barrel of WTI at $55. It has cost you $52+1.8+0.26.

What are the risks (its not totally riskless)? mainly counterparty risk. i.e. the risk that the other side will not honor your bet.

If price continue to drop lets say to below $50 or less in half year time?

Pretty sure no one's going to buy your big tanker of oil. Picture a line of tankers lining up to sell cheap oil to China

For every upside there is a downside, no such thing as sure bet.

Futures are traded with high leverage (margin trading) So counter parties run road is always a possibility. Especially contango becomes backwardation when contract due date is near to very near.
That's the "beauty" of future trading. Counter party can always declare bankrupt or run road.

[HitandRun]

In case you guys are not aware of, commodities giants like Vitol, Glencore, Trafigura, Cargill Inc. etc. trades hundreds of billions worth of commodities every year per company. Any trader that does not honour its agreement will be out of business real fast. If you are a new player, I suspect nobody is going to give you open credit ...

[bear]

It seems that the speculators and traders are already seriously considering pooling their resources in oil storage facilities in anticipation of the rising oil prices by the end of the year.

Brilliant or overconfident?

Bear san

You are mistaken. This trade is almost risk free in that they are fully hedged. They are just using the contango to make some money.....

Yes, I concur.

In case you don't know the "contango", I include the definition below. As an amateur, the risk seems only on the storage, before the delivery...

contango: the spot or cash price of a commodity is lower than the forward price.

Hi HitandRun & CityFarmer:

I understood.Thanks