Wednesday, January 14, 2009
Super contango!
What is a "super contango" and why does it mean that certain oil exporters are "diabolically desperate for cash"? Answer.
CWCID: Paul Kedrosky.
7 Comments:
By 
, at
Wed Jan 14, 04:38:00 PM:
Of course the cargo of the pirated tanker Sirius Star depreciated by about a third while it was in captivity.
Good to see that most of the pirates perished when their boat capsized after the ransom was paid.
JLW III
By , at
Wed Jan 14, 04:47:00 PM:
Some time ago, in a thread at this blog, I made a similar point to the "super-contango" post (though this is a much snappier name!) How can you tell when OPEC is in trouble? Cash flow diminishes due to price. Then, it diminishes even further because speculators have bought up and filled all available storage; liquidity problems show up; debt defaults happen.
Don't think an OPEC country can default on debt? Just watch.
By 
Dawnfire82, at
Wed Jan 14, 05:17:00 PM:
This is totally off topic, but I thought some of you might like to know that Bin Laden is still alive. Or was as recently as December, at any rate.
By Stan/Tx, at
Wed Jan 14, 06:32:00 PM:
An interesting idea, (sell oil today but leave it in the ground for future delivery) but in practice oil fields do not work like that.
The lower price for oil hurts the producing county’s revenue. Cutting back on production just hurts more. Many oil exporting countries do not have large cash reserves and are dependent on the day to day revenue to support the government spending and this will be the primary driver in John’s thesis.
An oil well will have its maximum production when it is first completed. From that point until it is abandoned, it will produce less each day. The decline curve can be flattened by reducing the daily output but not to the extent where the country could reliably guarantee that the amount of oil sold could be produced when required. Oil wells generally do not respond well to being turned off and on; most wells have a optimum production rate that maximizes the production and both choking one down or opening it up can reduce the total long term output.
The third driver in John’s thesis is that oil producing countries have increased the number of rigs drilling wells in a far greater proportion than resulting production. For example, Saudi has doubled the number of drilling rigs working and yet only increased their productive capacity by 15% to 20% in the past four years. There is very little spare oil production out there to compete with the oil in storage when the price starts back up again.
By , at
Wed Jan 14, 08:06:00 PM:
But left unanswered was the $64 question: Is nearby oil too cheap or are the deferred months too high?
By , at
Wed Jan 14, 10:10:00 PM:
Here's one big oil producer that was in enormous fiscal trouble when they could sell all their oil at $100 and more. Now, with rising violence and lower prices to contend with, the collapse of Mexico's government is a possibility.
By Viking Kaj, at
Thu Jan 15, 10:09:00 PM:
All it takes is an RPG and you have a first class ecodisaster on your hands.
