Oil for Delivery in 5 Years Rises on Supply Concern

Oil traders are paying record prices to get crude almost five years from now, reflecting increasing doubts the oil boom will go bust.

New York Mercantile Exchange futures contracts for December 2010 ended last week at $64.45 a barrel, the highest yet for that month. The price has risen 68 percent in the past year as investors speculated on further gains and refiners sought to lock in the cost of supplies. Buyers of futures contracts are guaranteed oil deliveries at a set price and agreed-upon date.
The market signals little relief is in sight from the high energy prices that last year led to record profits at oil producers including Exxon Mobil Corp., while increasing costs for consumers. Companies including BP Plc and Total SA are giving billions of dollars to shareholders through dividends and stock buybacks, restraining growth in energy investments.

“It’s meaningful that there are people who are prepared to buy oil at that price” for delivery in 2010, said Ian Henderson, who manages $1.1 billion in JPMorgan’s Natural Resources Fund in London, which had a return of 50 percent last year. “It’s almost politically unacceptable to admit that supply isn’t going to grow as fast as demand, but it’s already doing that.”

Bloomberg