Investors/Oil - Contango

"Everyone knows that oil prices are high because demand in places like China has boomed while supply has remained stagnant or fallen. But some oil analysts are focusing on a different issue: the amount of oil that's being held off the market in storage."
"That's the typical explanation. But some in the industry think it's too simple. They say other factors are just as important as the relationship between demand and supply. Chief among them is "contango," a market term for the situation in which a commodity -- like oil -- has a higher future value than its current price."
"Oil companies and others like to buy futures contracts to make sure they've got oil coming to them well into the future. But lately, people who have nothing to do with the oil industry are buying oil futures, holding them as can't-lose investments that can return well over 10 percent."

"Investment banks from Morgan Stanley to Goldman Sachs are making so much money from oil futures that they've become a hot investment for all sorts of big-money players."

"Some of the biggest players are U.S. pension funds, which have put billions of dollars into oil futures. At least one analyst thinks that pension funds have become part of the machinery driving higher gas prices."

See NPR story:

No comments: