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 August 31, 2007 although the pricing of oil is basically supply and demand driven, there are a few extended factors which should be considered. in addition to refinery inventories, OPEC (Organization of the Petroleum Exporting Countries) attempts to control global oil supply, and governmental controlled surplus inventory pools, such as: U.S. Strategic Petroleum Reserve (SPR), there also exists speculative market effects in the form of "contango" contango is a term derived from origins at the London Stock Exchange which described a fee paid to the holder of a commodity; the "contango fee" compensating for the cost of holding the commodity for a delayed future delivery if the future price of a commodity is higher then the current spot price for the commodity; then there exists financial incentive to hold onto such commodity to obtain the higher future price the costs involved in storing the commodity subtracts from the potential contango profits in practice, if the day rates for oil tankers is less then the differential in future commodity price, then it becomes financially advantageous to keep oil tankers at sea as the value of such cargo increases. there exists a somewhat flexible "bank" of oil inventory stored at sea if the futures price of oil turns lower then current spot prices oil tankers can magically start arriving at destination ports quicker future contract pricing therefore functions in a manner similar to the effect of interest rates upon the supply of financial liquidity |
 oil futures contango therefore also effects profitability of oil tanker companies; as such supply/demand characteristics effects the day rate pricing which such transportation companies are able to obtain |
 oh, by the way, be careful about forming opinions about oil pricing expectations based upon news reports that no new oil refineries have been built for quite a few years now; what might not be mentioned in such news reports is that there has been increased capacity added onto existing refineries |
 World Crude Oil Reserves U.S. Refineries Operable Capacity (January 1, 2007) |
this webpage was last updated on: August 31, 2007