Oil Contango Could Accelerate As Low Prices Forecasted

Brent oil collapsed by 48 percent in 2014, its biggest slide since 2008, as members of the Organization of Petroleum Exporting Countries kept pumping oil amid a global surplus that they say was caused in part by surging crude production from U.S. shale formations. Qatar estimates an oversupply of 2 million barrels a day. The price slump in 2008 was caused by a global recession. The contango between first-and six-month futures back then got to $12.29 a barrel.

“We’re forecasting very big stock-builds in the first half of next year, more than 1.5 million barrels a day so I think the contango markets are here to stay for the foreseeable future,” Mike Wittner, head of oil market research at Societe Generale SA, said by phone from New York on Dec. 30. “And could we see super-contango in the first half, which will encourage all kind of stock-building in whatever tank is available whether it’s on-land or floating? Yes, strongly yes.”

As much as 50 million barrels of oil were being stored at sea by February 2009, helping to curb tanker supply, the International Energy Agency, an adviser to 29 nations, estimated at the time.

Over six months, the biggest ships used for the trade would typically consume around 2,400 tons of bunker fuel and 548 tons of marine gasoil, according Svetlana Kourmpeti, senior market analyst at E.A. Gibson, the London-based ship broker. Cargo insurance costs around 0.1 percent of the value of the cargo per month and financing is typically around 4 percent per year, she said.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza