Oil at $20?

(podcast here)

Verleger talks about oil falling to c. $20 which may seem outlandish at the moment but the reality is that oil will likely take a fall in the short term, even with OPEC’s efforts to direct the market it won’t change the outcome, if oil is not being bought fast enough then it means that it will have to go into storage, the real story in this for me is one of oil storage and there are only a limited number of places you can store oil, you can leave it in the ground (not likely), you can store it in large land based tanks (these are getting very full) and then there are Ships, and that is a key, oil shipping is probably going to see a lift in business.

There is too much supply for existing demand and in the same way that the end of subsidies along with financial meltdown brought prices down from $147 the ongoing existence of these factors means that we won’t see a short term run up in oil, I expressed these thoughts in a post in 2008 called ‘I don’t know where Oil be this time next year‘.

Remember: as storage prices go up cash prices for oil go down, this occurred in 1999, and the argument here is that commodity prices will cycle. Peak oil it seems, still has a way to go as far as Verleger is concerned. The thing to watch is for the likes of China stockpiling, short of tomorrows demand being bought today it doesn’t seem likely that oil will be able to push much higher at least until we start to see some widespread economic recovery.

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