Oil prices beginning with ‘One’ could be with us soon as crude tanks to 12-year lows

This is really a Benjamin Button oil market. Reliving its twenties already, it now faces the decidedly awkward prospect of heading back into its teens.

U.S. crude climbed above $27 in New York after touching $26.13.?The energy minister in the United Arab Emirates said OPEC may cooperate to curb output, according to the WSJ.

U.S. oil prices fell for a sixth straight next day of market intelligence firm Genscape reported the Cushing, Oklahoma delivery hub for futures saw a build of just about 425,000 barrels within the week to Feb. 9.

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Here are three charts showing why oil bulls might soon regard that like a good price.



The big thing weighing on oil may be the amount of it relaxing in storage tanks. Keep the eyes on storage tanks around Cushing, Oklahoma. It’s a pipeline hub that also can serve as the physical reference point for that Nymex oil contract. At this time, Cushing’s tanks seem to be brimming. 

When land-based storage reaches capacity, thoughts turn to storing oil at sea. But storage on the ocean is expensive and thus causes spot prices for oil to trade in a wider discount to futures to pay for the added expense. Now check out multiplication between your spot price and the sixth-month contract:



Part from the reason more oil is heading into storage is that refiners aren’t processing as much as they were. There’s a seasonal effect at play, but additionally a fiscal rationale. A report on Wednesday that Valero was throttling back at its Memphis refinery because too much gasoline was building up spooked the marketplace. Why must refiners process a lot oil when margins look this?:



To remedy this situation, refiners need to negotiate affordable prices for his or her main raw material: oil. That shouldn’t be too hard with storage space drained and producers seeking a home for excess barrels. Oil prices starting with a “1” might be around soon.

Bloomberg.com