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Those investors ready to position themselves in oil stocks, or perhaps even dabble in oil futures, may want to wait a while. Oil traders are seeking up to 10 more supertankers to store oil at sea, Bloomberg News reported Tuesday. The additional oil stored at sea would amount to roughly a five day supply for the European Union.
Oil fell $2.77 to $45.78 per barrel. Further, although oil has risen more than 25% from $33 lows reached last month, those counting on a sustained rally in crude oil are taking a big risk, so says energy trader Jim Dietz.
"The storage of oil off-shore in tankers is one of a series of data points investors and certainly traders have to pay attention to," Dietz said. "We now have 25 supertankers holding oil at sea, or about 5% of the global supertanker fleet [about 500 ships]. A lot of that oil at sea is Iran's. If demand doesn't pick up, we're going to run out of places to store oil, which will compel a price drop." Dietz added that he was currently short unleaded gasoline, with a monthly contract.
OPEC's 4.2 million-barrel-per-day production cut has supported prices, but Dietz said another major factor supporting oil right now is the conflict in the Gaza Strip between Israel and Hamas. If an enduring cease-fire is achieved, oil will resume its descent, Dietz said.
"We have weak economic fundamentals in the world's three major economies, and [emerging market giant] China's economy may be slowing even more than we currently project, which would be bearish for demand and for oil prices, long-term," Dietz said. "Right now, there's way too much optimism regarding oil because the U.S. and global economies are not close to recovering." He added that he expects oil to drop below $40 barrel again, after a cease-fire has been reached in the Gaza Strip.
Oil Analysis: Oil bulls take notice - the quick rise to $50 could prove to be Pyrrhic. From a technical standpoint, one could interpret oil's quick, recent rise as largely corrective, following the steady drop from $100, with those shorting below $100 covering selected positions. Further, as Dietz noted, economic fundamentals and rising inventories suggest oil's downward path has not ended.
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Reader Comments (Page 1 of 1)
1-07-2009 @ 2:01PM
Iridium said...
This is what happens when you have all sorts of people purchasing contracts that have no intent of ever taking delivery just to make a quick buck.
If we want the price of oil to go back to a supply and demand based model then we need to add a quick little clause in an oil contract that you must be able to take pysical delivery of the oil if you are to purchase a contract.
For the life of me I can't figure out why a market would allow people to purchase something if they have no ability to actually take delivery of it.
All that does is invite fraud and speculation.
1-08-2009 @ 9:42PM
jmmijake said...
no thats what happens when when you pay 5.00 dollers for a gallon of gas people stops driving or go green im a invester and i im going to start investing in green that`s where the money is