Wednesday, December 10, 2008

Crazy Prices?

Oil for January 2009 delivery is priced at $43.80. For January 2010 delivery, it is $56.21, or 28% higher. That 28% has to cover my cost of financing and storing oil for one year. Could that be? Short term interest rates are very very low -- if a bank would lend me money on a sure bet! How much could the cost of storage be? Hmmm....

And NOMINAL interest rates on US Treasury bills went negative. In the US Treasury's auction of bills, the yield was ZERO. People are willing to lend US Treasury money at no cost. Gosh, I hope the Treasury locks in as much money as they can at these "deal of the century rates." I am going to wait just a bit longer, then lock in as much long term mortgage money as I can at 4.5 to 5% (I hope).

4 comments:

Katy M. said...

Re. oil storage: Ted and I were asking ourselves how much it would cost to rent an oil tanker for a year. Fill it up at today's prices and just park it somewhere for a year.

Of course, we are the ones who bought a fixed-price heating oil contract at the end of July(!), so we are NOT destined to make a fortune speculating.

Anonymous said...

Bob,

Obviously, you are not worried about deflation which is what the FED is worried about today. Your long term mortgage at 4.5% to 5% would not be very attractive if deflation materialized.

AK

groovyroovy said...

Robert,
Storage is the problem. There is extremely limited storage capacity with respect to the amount of oil shipped, refined and consumed.

Katy M. said...

Hey, apparently I was on to something. From WSJ last Friday:

Shipping prices collapsed as trade slowed last year, but they are now rising sharply as traders at the likes of Citigroup and BP fill tankers and moor them off Scotland.

http://online.wsj.com/article/SB123143754965364993.html?mod=googlenews_wsj