Wednesday, May 21, 2008

it takes two to contango

The oil futures markets are in contango. Basically this means that the further into the future a futures contract is for the higher the price. This is the opposite to what normally happens.

No matter what the hippies and socialists say oil probably is now past the peak. World demand is currently 87 million barrels/day, supply is 85 million barrels/day. Nobody seems to be able to make up the difference. 2 million barrels a day is a huge shortfall and with China and India growing phenomenally it can only get worse. Don't believe the crap about recession dampening demand - it doesn't. Petrol seems to be 100% inelastic - just look at all the Facebook groups demanding the price falls (they seem to think the price is fixed by the UK government and some unholy alliance of oil companies) but they get really pissy if you suggest driving less!

Supply and demand are dancing a fascinating dance and nobody can possibly predict where they're heading for - but I suspect $200/barrel by early 2009 and unleaded at £2/litre at around the same time. Wonder what the Facebook hippies will make of that??
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