EmptyBee wrote:It'll be interesting to see just how much the markets respond to all this. I wonder how long US inventories will keep looking healthy if this is kept up for long?
The first response is usually nervousness and you see the 'risk premium' increasing in futures contracts maybe 6 or 12 months ahead. On Friday the market stopped its freefall and the contango stabilised, so I think when the markets get back to work we'll see the bearish trend interrupted at least for a little while.
Crude from Nigeria I believe takes around 15-20 days to reach the US gulf coast, and then the EIA inventory statistics take another 5 days to be compiled and released, so inventories wont reveal the impact of Nigerian shutdowns for almost another month, and it wont always be apparent whether more crude is coming from elsewhere instead, unless you have access to very expensive shipping databases.
If we do see a big draw in US crude inventories, that's when people start buying the front month contracts, and the contango starts to go away, pulling crude out of storage (which is full to the brim right now).
Speaking of storage; on Friday the difference between the Nymex WTI March and April contracts reached $1.80. Most storage costs about $0.30/barrel per month (including cost of carry) with some cheaper and some more expensive, so you can see that a contango of $1.80 makes it incredibly worthwhile to buy oil, store it, and sell it later. In fact you'd probably keep it for 3 or 4 months before it's worth selling. And at around $1.75 (at current freight prices) you can make money by hiring a tanker, filling it with crude and leaving it in the US gulf for a month.
So it will be interesting to see if the Nigeria problems last long enough to become persistent bullish stories again, and whether the reality actually does filter through to inventories in a few weeks.
