I was once told that spot prices were always higher than future prices.
I think that is only in a rising market... in a declining market spots can fall below future contracts... and maybe a lot below the future price if those future contracts have already been 'covered'... so no need to buy additional spotts to cover the future position.
I know this is the case with corn after harvest where future contracts for say winter or spring (tight supply relative to demand) will be well above Fall spots prices (huge supply relative to demand)...
In oil it has been a long time since supply was so high that prices trended down... but that did happen in the late 80s & early 90s except for the period arounf Gulf War I.
I am not 100% sure. Maybe CR can shed more light on this.
If any of you recall, Greenspan previously disregarded the likelihood that outquarter and outyear oil futures prices would be able to sustain themselves.
I didn't understand the basis for those remarks a few months ago. I still don't, but I passed them on.
If he was forcasting a global recession or regional global recession, then I could agree. Otherwise, I don't follow his logic or whatever model he is using.
Greenspan's forecast doesn't match up with any oil agency or association data that I have reviewed. Excluding recessions, that is.
From CR: The good news is the price is being driven by growing demand as opposed to a supply shock like in '73 and '79. We will probably see some slackening of demand in the near future and that should lead to somewhat lower prices.
We may get our oil shocks yet... and sooner than we imagine:
Both are very long reads and very grim but absolutely required reading if you want to plunge the depths of the possible non-faith based outcomes facing us. If reality goes anything close to this route... civil war with the clients of a nuclear Iran eventually taking control... looking down over the rest of the Persian Gulf & Arabian Peninsula... then we'll see $100 oil easy... Maybe learn to look back at a $100 oil with nostalgia.
MG, I was thinking about looking back at Greenspan's speech from last year ... it didn't make any sense to me at the time. I suppose demand for oil could slacken without a recession, but that would probably mean slow growth.
"price is being driven by growing demand as opposed to a supply shock like in '73 and '79. We will probably see some slackening of demand in the near future and that should lead to somewhat lower prices."
CR -- I wonder if U.S. industrial demand for crude products will drop. We had 4.4 industrial growth in 2004 according to the CIA Factbook. Perhaps most of the energy growth in support of that effort was part of the ongoing switch to natural gas as well as increased electrical source energy demand.
dry fly -- I scanned both articles. I don't see a circumstance under which we would allow Iran to threaten crude oil production and port delivery throughout the Middle East. That's just not going to happen.
Iraqi oil is another matter. Net contribution to global supply is rather smaller than it might appear. Iraq is importing finished product at the moment. Yes, it is exporting some crude, but the net export quantity is not making a substantial dent in global demand beyond Iraqi demand.
I am suggesting that the global market needs are getting by without significant crude delivery by Iraq to outbound ports. Iraq, though, has the future capacity in existing oil fields to become a solid net exporter within a few years.
If something were to go wrong in the Middle East, Japan should take the largest hit on immediate lack of crude oil considering its dependency on Middle East oil. Interestingly, though, the U.S. has an agreement with Japan to provide adequate supply of crude oil to Japan in such an event. I can't find the reference document at the moment, but I read that a month or so ago.
Just another reason why the U.S. should think twice before giving a green light to any sales of U.S. corporate assets proficient in crude oil production or delivery. Not sure why we let CITCO go to Venezula. There is pressure for Venezula to now sell CITCO. I hope a U.S. concern buys it back.
MG - I agree with a lot of what you say there... but in many ways things are getting worse on the ground in Iraq than we hear... Fewer of our boys getting killed which is good and talk about us getting out which is better but far more Iraqi-Iraqi violence. It is heading toward civil war and the Iranians are getting involved and are likely to be the winners. Should that happen then this could easily spill over into a larger theater problem and affect oil production & prices in ways we cant yet imagine. Talk about your fear premium.
What is worse is our military was designed to deny some outside third party like the Soviets from taking control not fighting & winning a civil war... We really arent prepared for any of what we are facing. And if Iran goes nuclear our options will be even more limited.
When you have time, do more than scan the articles, read them... Then follow the links to the mainstream media reports & such that back up the articles... Unfortunately this is NOT that far fetched.
dry fly -- I agree that the present situation in Iraq appears to be worsening..severly, perhaps. That's a concern. But if Iran tries to go nuclear in a confrontation with the U.S. or Israel, we will take them out. Hard.
Granted, the worsening situation in Iraq, potential if not likely civil war, Iran's participation in such a civil war, and all such developments are serious issues. And there will be political fallout in the Middle East. Perhaps even some oil supply disruptions. But we will not allow the region to implode.
I am more concerned that disruptions may occur elsewhere in Eurasia along various pipeline routes in some of the more isolated regions. That could trigger serious consequences and create the possibility of larger confrontations with Russia and China, among other nations.
Its bad time to have crazies at the helm in so many countries. This is especially true that they are religous crazies.
So afar no one has pickled off a nuke for fun. However, it is a fact that while nukes are considered a last ditch weapon by many, the only uses of them have been to finish off an already defeated enemy.
Of course, my solution to the whole thing is to nuke the temple mount with an unidentifible nuke. The religous right in the US gets a major setback on their endtime theology. Islam loses a major site to fight about. All it costs are children and their pets.
As to Iran and Iraq, one they get into Iraq and the US leaves, then the friendship can dimish. After all Syria was welcomed into Leabon.
I was once told that spot prices were always higher than future prices.
I was once told that spot prices were always higher than future prices.
I think that is only in a rising market... in a declining market spots can fall below future contracts... and maybe a lot below the future price if those future contracts have already been 'covered'... so no need to buy additional spotts to cover the future position.
I know this is the case with corn after harvest where future contracts for say winter or spring (tight supply relative to demand) will be well above Fall spots prices (huge supply relative to demand)...
In oil it has been a long time since supply was so high that prices trended down... but that did happen in the late 80s & early 90s except for the period arounf Gulf War I.
I am not 100% sure. Maybe CR can shed more light on this.
Sorry ... I should have been more clear. By "contract" I meant actual price paid on oil contract, not future contract.
You can get this info from the DOE.
Best to all!
If any of you recall, Greenspan previously disregarded the likelihood that outquarter and outyear oil futures prices would be able to sustain themselves.
I didn't understand the basis for those remarks a few months ago. I still don't, but I passed them on.
If he was forcasting a global recession or regional global recession, then I could agree. Otherwise, I don't follow his logic or whatever model he is using.
Greenspan's forecast doesn't match up with any oil agency or association data that I have reviewed. Excluding recessions, that is.
From CR: The good news is the price is being driven by growing demand as opposed to a supply shock like in '73 and '79. We will probably see some slackening of demand in the near future and that should lead to somewhat lower prices.
We may get our oil shocks yet... and sooner than we imagine:
Billmon on Iran 'winning' Iraq
Billmon on Iraqi Civil War
Both are very long reads and very grim but absolutely required reading if you want to plunge the depths of the possible non-faith based outcomes facing us. If reality goes anything close to this route... civil war with the clients of a nuclear Iran eventually taking control... looking down over the rest of the Persian Gulf & Arabian Peninsula... then we'll see $100 oil easy... Maybe learn to look back at a $100 oil with nostalgia.
MG, I was thinking about looking back at Greenspan's speech from last year ... it didn't make any sense to me at the time. I suppose demand for oil could slacken without a recession, but that would probably mean slow growth.
df, I agree, billmon is definitely a must read.
Best Regards!
"price is being driven by growing demand as opposed to a supply shock like in '73 and '79. We will probably see some slackening of demand in the near future and that should lead to somewhat lower prices."
CR -- I wonder if U.S. industrial demand for crude products will drop. We had 4.4 industrial growth in 2004 according to the CIA Factbook. Perhaps most of the energy growth in support of that effort was part of the ongoing switch to natural gas as well as increased electrical source energy demand.
dry fly -- I scanned both articles. I don't see a circumstance under which we would allow Iran to threaten crude oil production and port delivery throughout the Middle East. That's just not going to happen.
Iraqi oil is another matter. Net contribution to global supply is rather smaller than it might appear. Iraq is importing finished product at the moment. Yes, it is exporting some crude, but the net export quantity is not making a substantial dent in global demand beyond Iraqi demand.
I am suggesting that the global market needs are getting by without significant crude delivery by Iraq to outbound ports. Iraq, though, has the future capacity in existing oil fields to become a solid net exporter within a few years.
If something were to go wrong in the Middle East, Japan should take the largest hit on immediate lack of crude oil considering its dependency on Middle East oil. Interestingly, though, the U.S. has an agreement with Japan to provide adequate supply of crude oil to Japan in such an event. I can't find the reference document at the moment, but I read that a month or so ago.
Just another reason why the U.S. should think twice before giving a green light to any sales of U.S. corporate assets proficient in crude oil production or delivery. Not sure why we let CITCO go to Venezula. There is pressure for Venezula to now sell CITCO. I hope a U.S. concern buys it back.
MG - I agree with a lot of what you say there... but in many ways things are getting worse on the ground in Iraq than we hear... Fewer of our boys getting killed which is good and talk about us getting out which is better but far more Iraqi-Iraqi violence. It is heading toward civil war and the Iranians are getting involved and are likely to be the winners. Should that happen then this could easily spill over into a larger theater problem and affect oil production & prices in ways we cant yet imagine. Talk about your fear premium.
What is worse is our military was designed to deny some outside third party like the Soviets from taking control not fighting & winning a civil war... We really arent prepared for any of what we are facing. And if Iran goes nuclear our options will be even more limited.
When you have time, do more than scan the articles, read them... Then follow the links to the mainstream media reports & such that back up the articles... Unfortunately this is NOT that far fetched.
dry fly -- I agree that the present situation in Iraq appears to be worsening..severly, perhaps. That's a concern. But if Iran tries to go nuclear in a confrontation with the U.S. or Israel, we will take them out. Hard.
Granted, the worsening situation in Iraq, potential if not likely civil war, Iran's participation in such a civil war, and all such developments are serious issues. And there will be political fallout in the Middle East. Perhaps even some oil supply disruptions. But we will not allow the region to implode.
I am more concerned that disruptions may occur elsewhere in Eurasia along various pipeline routes in some of the more isolated regions. That could trigger serious consequences and create the possibility of larger confrontations with Russia and China, among other nations.
Its bad time to have crazies at the helm in so many countries. This is especially true that they are religous crazies.
So afar no one has pickled off a nuke for fun. However, it is a fact that while nukes are considered a last ditch weapon by many, the only uses of them have been to finish off an already defeated enemy.
Of course, my solution to the whole thing is to nuke the temple mount with an unidentifible nuke. The religous right in the US gets a major setback on their endtime theology. Islam loses a major site to fight about. All it costs are children and their pets.
As to Iran and Iraq, one they get into Iraq and the US leaves, then the friendship can dimish. After all Syria was welcomed into Leabon.