Rumblings about the vast volumes of crude oil and its derived products in storage are only getting louder.
The IEA stressed its concernsabout inventories of crude oil building up in its latest monthly oil market report. At its last quote meeting, Opec made clear it is worried about the build-up causing downward pressure on prices by declining to make a noise about improving compliance.
Now, Bloomberg reports, the spread between put and call options on prices falling from their current levels are at a record high, showing traders are piling in to guard against (or, profit from) a drop in oil prices in December:
The gap between prices of options betting on a decline and those that would profit from a rise in oil widened to a record 10 percentage points, according to five years of data compiled by Banc of America Securities-Merrill Lynch.
And:
Options granting the right to sell, or put, oil in December below current prices have a so-called implied volatility of 54.3 percent, compared with 43.3 percent for the equivalent options to buy, or call, data from the New York Mercantile Exchange show.
The story also quotes uber-bearish analyst including Philip Verleger:
“There’s all this heating oil with no place to go,” Philip Verleger, a professor at the University of Calgary and head of consultant PKVerleger LLC, said in a phone interview. “I’m fairly certain we’ll see prices in the $30s this year.”
Concerns are particularly focused on middle distillates in the US and Europe – and as the IEA noted earlier this month, the situation with Chinese inventories is far from clear.
In its monthly oil report, released today, The Centre for Global Energy Studies writes that middle distillates in 20 key countries, plus product held in floating storage, now totals more than 740m barrels – and increased demand for these products relies on economic activity picking up.
They write:
Even then, it may take some time for rising economic activity to be reflected in growing consumption of middle distillates, since its use is concentrated towards the end of the supply chain, in the overland distribution of goods to wholesalers and retailers.
Even a long, cold Northern Hemisphere winter might only provide temporary respite, the CGES says. And yes, this could stretch out beyond 2009:
The CGES expects little sustained upward pressure on oil prices over the remainder of this year and even next year prices are unlikely to rise much unless clear signals emerge that world is pulling out of recession in a sustainable fashion.
Related links:
Opec still has storage concerns (FT Energy Source, 15/09/09)
Nothing bullish in crude (FT Alphaville, 22/07/09)
