Yahoo! CWEI
Yahoo! CWEI
Crude Contango reflects a Changed Game
by: agrossfarm 02/18/05 12:03 pm
Msg: 78091 of 78123
The change from Backwardization to contango is the result of dehedging (which lost the oil compnaies $billions) and high current prices plus the prospect that prices will be rising, not falling in the forseeable future.
PHASE 1:
When OPEC indicated it would defend $40 WTI spot, the game changed. The only force able to INCREASE supply and thereby reduce prices, was now going to be focusing on DECREASING supply if/when prices weakened.
PHASE 2:
When OPEC started to threaten to have teleconferences BETWEEN scheduled meeting to REDUCE output PRE-Emptively if/when storage was too high, it signaled that the price of crude was not going to even be allowed to decline to the $40 level.
IMO, this (in addition to the overall precarious supply/demand situation going forward) is why we have very firm petroleum prices, and Contango.
posted by agrossfarm @ 12:05 PM
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