[mattduke]

Something to chew on.

http://stockology.blogspot.com/2008/10/ ... ation.html

[Niagara]

Interesting article, thanks,

I bought some PAL for the heck of it.

[Leanan]

FWIW, I think there's something to this.

The credit crisis means a lot of big investors are being forced to sell assets to raise cash. Including oil. There's rumors of huge oil sales from hedge funds and the like, just because they need the money.

Oil is in contango - more expensive in the future than it is now. Not really what you'd expect if it was just fear of lower demand due to a worsening recession that was driving the price down.

[copious.abundance]

Oil is in contango - more expensive in the future than it is now. Not really what you'd expect if it was just fear of lower demand due to a worsening recession that was driving the price down.

For a non-perishable good such as oil (it does not spoil when held for long periods of time) a contango is normal.
--> Contango <--

A contango is normal for a non-perishable commodity which has a cost of carry. Such costs include warehousing fees and interest forgone on money tied up, less income from leasing out the commodity if possible (e.g. gold).

The contango should not exceed the cost of carry, because producers and consumers can compare the futures contract price against the spot price plus storage, and choose the better one. Arbitrageurs can sell one and buy the other for a risk-free profit too (see rational pricing – futures).

[copious.abundance]

Here's another example: Back in late May, oil was also in contango:
--> article <--
The spot price at the time was $130, but the 2016 contract was $138.

And yet, at the time, oil had less than 2 more months before the price started crashing.

In the Wiki article I linked above, it mentions that oil was in contango in 2005 and 2006. But recall that in the latter half of 2006, the price of oil did fall from almost $80 to almost $50.



So I'm not sure you can tell much about the future price of oil based on whether it's in contango or not. If anything, it might foretell at least a relatively near-term price decline.

[eastbay]

Thanks Matt. Good read. Saved it and will pass it along to a few friends.

[frankthetank]

Only thing i see is the job situation. You start massive jobs cuts in the US (Europe) and there will be a lot less demand of everything. Jobs are key. You aren't going to need all those exotic metals if you can't afford a new car. I suppose China could be the wildcard, picking up while the US falls.

[TreebeardsUncle]

This is a brief dip. Prices will be back up by March 09.
g

[ohanian]

This is a brief dip. Prices will be back up by March 09.
g

You better pray to the god Huitzilopochtli that the price of oil bounce back by March 2009

Or USA will be in a deep deep deep recession by then!!!!

[ReverseEngineer]

With all the new dollars being pushed into the system, Oil prices of course have to rise, but do they rise in adjusted dollars? No, because the demand has to fall here simply because the contruction companies that bought insulation are no longer building houses and the consumers who once had jobs and drove to work no longer are doing that. At least in nowhere near the numbers they were.

Personally, I do not think we will be able to say whether the real price of oil falls or drops with respect to dollars, because I don't think the dollar can hold up as a reserve currency. Before the market could price it out effectively, the market itself will fail.

COME ON! Just how long can this JOKE of a "Free Market" be maintained here? There is NO relationship right now between market prices and what actual value is for ANYTHING. Suburban homes are STILL priced up in the $100s thousands, even though nobody will by the mortgages and they are renounced by all as "toxic debt". About the time they write down all mortgages to maybe 20 cents on the dollar and start reselling properties at that level you might see a real market. Its not gonna happen, because it bankrupts everyone using this system.

Reverse Engineer

[alokin]

The US consumption is down but what really matters are the plans and the development of China and India. And it seems that no one really seems to have a clue about that.

[Falconoffury]

This is a great article. I especially liked how it used real world examples such as the auto companies selling off their reserves of palladium and platinum normally used in catalytic converters.

I didn't even know about the cobalt situation. That's another metal I need to buy.

The low metal prices will hurt metal mining for years to come. That is for sure.