Peak Oil Passnotes: Where Do We Go From Here?

As we normally take a look at factors hustling the oil market, like storms, war, debt and fiscal madness, it is time we stopped. Let us have a quick look at where the oil market actually stands at the moment.

In general the market is in backwardation; that is crude oil at around $74 per barrel for WTI is higher than the market expects it to be in the coming months. But the curve, the line of the graph, is in fact very flat. In other words this says two things about where traders and institutions think the oil price is going to go.


Firstly you can say that the market thinks the price is going to stay roughly the same, somewhere between $70 per barrel and $75 per barrel. To be honest this would be a fair assessment to a lot of people. The other interpretation of a flat curve is that no one actually knows where the price of crude oil is going to go. This would also be a fair assessment.

When prices are higher at the front of the curve this generally tends to mean that selling oil is a good bet. If the curve is the other way around storing oil is generally regarded as the better option. After all if oil is more expensive in the future, why not hang on to it?

So right now the market is leaning to say that oil is going to be cheaper in the next few months of the year. There are some good pointers to that. Firstly, the last two years. In 2005 and 2006 in the second half of the year we had two very heavy bouts of shorting, that is betting on the market to go down. The thing that was driving that market, in this columns opinion, was greed.

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