If, say, someone will pay you $160 a barrel for a 6 month out contract, and the costs of storing etc. would be $10, and you can buy spot oil at $140.... So, you would be making not a "hopefully", but a guaranteed profit of $10 a barrel.
Lemme see if I understand how this works.
Somebody buys from me a contract to deliver oil in 6 months at 160. So I now have $160 in my pocket. Since he owns the contract and I am short, I believe that he has the right, but not the obligation, to force me to deliver the oil in 6 months. Which he will no doubt do if spot oil is then trading at 161 or higher. But if it is trading at 159 or less, then I believe he has the right to let the contract lapse, and not force delivery. Is that correct?
I now buy spot oil at $140, so I have $20 left in my pocket. And I pay the storage folks $10 for 6 months of storage, leaving me with $10 in my pocket.
In the next few months the U.S. GDP is down 1% and the recession starts to take hold. China's growth slows after the Olympics and drops to only 7%. And global oil consumptions starts to slow down, dropping to "only" 84 million barrels/day.
And of course oil starts down, and first thing you know it's below 120 and dropping fast.
I'm thinking that instead of a guaranteed profit of $10 I'm in a world of hurt. |
