Yesterday I was looking at oil prices and found something interesting. The price of WTI oil was about $7 or $8 below the price of the other two contracts listed. I asked if any of my readers could explain such a big difference in prices and reader Bill came to the rescue.
Yes it is what is know as cantango. when the futures prices end up with a much higher spread level. It has been going on if you look not just the cash and feb contract but out 6 months it has been widening.Reader Frank had something else of interest to add.
It is because there is no storage available and no real credit to buy the oil to store. In normal times the out prices are in line with what can be made after paying the cash price the interest charge and storage charge, Then you sell the out contract and lock in a profit. None of these are available, It has been common knowledge that many oil producing controuies have been leasing tankers to just float on the sea and hold the oil they have no market for.
This is a very bearish setup. Until it breaks oil with go lower.
Bill is correct about oil. The exact opposite is happening in gold futures, that is, backwardation. There are more buyers for physical gold than there are sellers.So what does it all mean?
So in order to buy gold coins for example, you must pay a good premium above the current spot price to get delivery now - and that's IF you can find a seller.
Lower oil prices, probably much lower and higher inflation (in 2008 the official figure for inflation was about 6%), so much higher inflation is probably in store.
Well I'm no economist and I have no money to put into any market and this advice is worth exactly what you paid for it, but the thing to do in times of high inflation and low interest rates to protect your assets is to buy real property. In other words it is time to buy houses.
Cross Posted at Classical Values