[BiGG]

It occurs to me that by contributing data, information, knowledge, and opinion to this site, we are developing a hugely valuable research tool. We create a common awareness of developing data and use "the wisdom of crowds" to refine our understanding of the implications of that data.

Seems like, considering the immense value of this knowledge, we should be able to get a think tank to hire us all so we can quit our day jobs and become full time public intellectuals.

Huh? What do you mean “should”?

You haven’t already been getting a check every week from Aaron just for this purpose?


.

[johnmarkos]

Later futures prices still exceed the earliest month's price as late as June, 2007.

The price of "Brent Crude" exceeds that of "Light, Sweet Crude."

[MicroHydro]

Today, history was made in the NYMEX oil trading pits. Historically, oil in the current month is more expensive than in far future months. This is known as backwardation.

At the present moment, current month oil is the cheapest. Every other contract costs more out to Dec 2011. This is called contango. Contango is normal in gold due to expectations of inflation, but there has never been a full contango in oil. The traders are now making the paradigm shift into accepting peak oil theory, with a peak this decade.

[seldom_seen]

Interesting, thanks for the heads up.

[Don_Quichote]

Normally contango is a bearish signal and backwardation a bullish signal...

But these are not normal times and the contango may in fact be a bullish

signal...

[smiley]

It does show that there is a lot of money flowing in at the long side of the market. Makes you wonder who these guys are. My guess is.

1) Institutional investors like pension funds which are in for the long haul.
2) Companies who want to hedge themselves against higher energy prices.

These are pretty serious investors which have access to a lot of information. If they think that oil is going to head a lot higher in the next few years, I would definitely interpret that as a bullish signal.

[Raxozanne]

They must have finally figured out that oil isn't going to get any cheaper!

[OilsNotWell]

As predicted and commented upon.

Just goes to show you that relying upon outdated assumptions and the reassertions of biased interests can be very shortsided...

Even today, there's a crowd that will tell you that a contango in this market is actually sign of a glut...I just don't get how these people think.

But, in my thinking, I think about how higher prices in the future actually come about...more people willing to pay a higher price in the future...so simple really.

[seldom_seen]

2) Companies who want to hedge themselves against higher energy prices.

As I recall, that is how Southwest airlines was one, if not the only airline company to report a quarterly profit the last time around. Maybe others are trying the same tactic...

[clv101]

Can any airline make a profit on >$50 oil though? SouthWest didn't make a profit due to a large hedge - they made a profit due to a large hedge of cheap oil.

[MacG]

Scary prospects when investor psycology kick in. These guys are really quick with their calculators. "Hmmm... I will get more for this oil in a month than I get now. What is the cost to keep it a month? Will I make a bigger net earning if I wait a month? Two months? Six? Could I make a profit using leverage to buy even more oil and sit on it for some time?

[MicroHydro]

Scary prospects when investor psycology kick in. These guys are really quick with their calculators. "Hmmm... I will get more for this oil in a month than I get now. What is the cost to keep it a month? Will I make a bigger net earning if I wait a month? Two months? Six? Could I make a profit using leverage to buy even more oil and sit on it for some time?

High oil prices are not a problem, but a solution. I agree with Matt Simmons that $150 oil is needed as soon as possible to fund the rebuilding of the global infrastructure and conserve what oil is left. It is possible to build electric rail and trolley networks to move freight and people post oil. Wind turbines, solar plants, and nuclear plants can be built. But, it will take decades and cost tens of trillions of dollars.

If oil futures traders create a price crisis now, in advance of a huge shortfall in supply, they are doing the world a favor.

[RonMN]

$150 oil would be a problem and a sollution.

How do you rebuild with $150 oil? what would steel cost? Road construction would be almost non-existant (not to mention the price of food)...as oil rises, EVERYTHING rises. so i don't see $150 oil being much of a sollution.

I do however, see it triggering the great economic collapse.

[clv101]

High oil prices are not a problem, but a solution. I agree with Matt Simmons that $150 oil is needed as soon as possible to fund the rebuilding of the global infrastructure and conserve what oil is left. It is possible to build electric rail and trolley networks to move freight and people post oil. Wind turbines, solar plants, and nuclear plants can be built. But, it will take decades and cost tens of trillions of dollars.

I don't agree, neither does Campbell... a spike of $150 could cause economic disaster that will destroy demand below supply - oil prices will crash. The world will be in depression like it's never known but oil will be cheap removing the incentive to develop alternative and removing the large revenues for energy companies to invest in new technology. It's a pretty bleak outlook!

[MicroHydro]

I don't agree, neither does Campbell... a spike of $150 could cause economic disaster that will destroy demand below supply - oil prices will crash. The world will be in depression like it's never known but oil will be cheap removing the incentive to develop alternative and removing the large revenues for energy companies to invest in new technology. It's a pretty bleak outlook!

Campbell is a smart guy, but not a sucessful veteran energy investor. I believe that Matt Simmons has a better grasp of the economic issues. Europe is already doing ok with $6 per gallon petrol, a positive trade balance, balanced national budgets, and superior health and rail infrastructure to the US. High energy costs can be consistent with a healthy economy.

The US is doomed to a deep depression due to its debt bubbles, independent of peak oil. Cheap oil can not prevent the collapse of the US dollar and economy.

[frankthetank]

Isn't Europes $6 gasoline mostly taxed that is fed back into the system for these programs that Europeans have? Vs. future $6 gas that will be fed to Exxon or Saudi Arabia...?

We're in one hell of a bind

[nero]

I believe Simmons was saying that we needed $182 a barrel oil to properly fund the oil industry itself. In other words he was arguing to create the OIL infrastructure necessary to supply the oil that the IEA says we will demand in 20 years time we need to be paying the oil services companies and the IOC's a real high rate of return to induce them to invest enough. He's an petroleum industry investment banker afterall.

I don't think $150 dollar oil will cause the economy to collapse. That translates into $4.50 a gallon, basically doubling the current price. That's not that bad is it? Oh I know other things will also increase in cost and we'll have inflation and then the Fed will increase the interest rates and the housing bubble will pop and the economy will go down the tubes. But seriously, if you're not standing in line infront of the soup kitchen there hasn't been an economic collapse.

[halfin]

Look at the Nymex oil futures contracts at http://www.nymex.com/jsp/markets/lsco_fut_csf.jsp? (click on Current Expanded Table if necessary) to see the June 8 data, and compare the settlement prices for December of the next few years:

2005 $56.02
2006 $55.45
2007 $54.47
2008 $53.72
2009 $53.17
2010 $52.67

As you can see, there is no contango! Prices are lower each year. The markets apparently expect oil prices to be several dollars lower in 2010 than now. I don't see how you can see this as a prediction of Peak Oil.

[linlithgowoil]

traders are obviously still working under the assumption that the current high price is probably temporary, and prices will fall in future. they obviously do not agree with peak oil at all - they think we are simply in a tight market due to under investment and all this money going into oil firms will cause that investment to increase and bring more oil online in the next few years.

[FrankRichards]

2005 $56.02
2006 $55.45
2007 $54.47
2008 $53.72
2009 $53.17
2010 $52.67

As you can see, there is no contango! Prices are lower each year. The markets apparently expect oil prices to be several dollars lower in 2010 than now. I don't see how you can see this as a prediction of Peak Oil.

I agree that's technically backwardation. But look at how shallow the slope is. There's virtually no cost of money included. You could put money in a 2% savings account and do better than on oil futures.

Again, I agree these guys aren't thinking Peak. They're thinking $50-60 for the next 5 years. Last year they expected $30. So now they've at least read the megaprojects report. They still think there's more oil to be found, but they've figured out that it isn't found yet.

Step by step.