[smwinc]

Quotes from John Mauldin - for more information: http://www.frontlinethoughts.com/learnmore

For a few weeks now, observers have noticed that Iran is leasing tankers and storing oil in them. At about $140,000 a week or so, that is expensive storage. At first, conspiracy theorists were wondering if they were preparing for some kind of war or attack. But more conventionally, it may be they are having problems selling their oil. Their oil is not very high-quality, and there are only a few places that can take it and refine it. India, China, and the US are among the countries with refineries that can take Iranian oil. (And yes, George Friedman of Stratfor tells me some of it does end up in the US from time to time.)

India's refiners are telling Iran they no longer want their oil, preferring the higher-quality oil that is readily available in the area. So Iran has to decide whether to send it to China or "repackage" it so that it can end up in the US, while they try to get refiners in India to change their minds. Thus, they are leasing tankers to store the oil they are pumping.

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..New York in the early '80s. Outside the harbor were 30 or so tankers just sitting, waiting for prices to continue to increase as they had been doing for some time. When they did not, they all tried to get into the harbor at the same time, and of course they couldn't. It was the top of the market. Prices dropped, and the owners of the oil had to go to the futures market to hedge what they could.

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If you are leasing tankers to deliver oil that is already hedged in price, you want to get it to port as soon as possible so that your lease payments stop as soon as possible. You only hold it on the high seas if you think the price is going up by more than your carrying costs (the cost of money and leasing the tanker). If you start to lose money, you sell your oil on the futures market and get it to port as fast as you can.


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more importantly pay attention to their actions, oil company executives simply do not believe that the price of oil is going to be $135 a barrel for the next few years. If they did, they would be punching more holes in the ground in places where it might be expensive to get the oil to market - but at $135 a barrel it would be profitable.

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Thoughts? Comments?

Super long term, I'm bullish. Medium term, I'm not. Coming into $150 MAY provide a very nice short opportunity. I, for one, will be keeping my eyes pealed for an opportunity. To hedge, I'll be longing a beat-up sector like Airlines.

Originally Posted by smwinc »

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more importantly pay attention to their actions, oil company executives simply do not believe that the price of oil is going to be $135 a barrel for the next few years. If they did, they would be punching more holes in the ground in places where it might be expensive to get the oil to market - but at $135 a barrel it would be profitable.

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Didn't crude just reach $135? Make you wonder about this analysis.

[smwinc]

Originally Posted by forsearch »

Didn't crude just reach $135? Make you wonder about this analysis.

That's basically the point John's making.

If oil executives believed what many reports are saying - peak oil theory, etc. - and we are in fact entering a period of sustained high prices - there are plenty of other mining sites that failed a cost/benefit analysis at sub $100 oil, but would now be profitable at $130 + oil.

It comes down to your own best guess. One of these parties is clearly wrong - either the fundamentals need to catch up to the current oil price, or the current oil price is due for a correction.

Don't get me wrong here - I'm not a fundamental trader, or long-term investor, etc. It's just an observation, and I thought these points were worthy of discussion.

I do love a good Bubble-bursting short though.

[GammaJammer]

Originally Posted by forsearch »

Didn't crude just reach $135? Make you wonder about this analysis.

Yes think you misunderstood - think he was saying it can GET there (like you say, it IS there) but it ain't gonna STAY there.

I think it's an interesting piece myself.

GJ

[smwinc]

I've attached a PDF of the full article for those interested.

[zdo]

The Demand side...
Where are the trucks?
Seen any articles about the decrease of 18 wheelers on the Interstates?