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| MERCURIA IN THE MEDIA |
Oil Contango Set to Last Through 2009
Reuters June 25, 2009
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Oil contango set to last through 2009 - Mercuria
* Discounts for prompt oil expected until at least end 2009
* Very high stock levels still depressing nearby oil prices
* Oil stocks to fall unless OPEC increases output quickly
By Christopher Johnson
LONDON, June 25 (Reuters) - Spot oil is likely to trade at a discount to forward futures in what traders call a contango until at least the end of this year as huge inventories depress nearby prices, the head of oil trader Mercuria said on Thursday.
Crude oil has been in contango since last year with the discount for the front futures contract for U.S. light crude oil stretching to more than $8 per barrel during the winter as recession gripped the big economies and demand for oil fell.
Mercuria Chief Executive and co-founder Marco Dunand said the contango reflected very high oil stocks that have built up on land and at sea as supply has outstripped demand.
Swiss-born Dunand forecast oil inventories would slowly fall this year and noted the discounts for prompt oil had started to narrow. But he said there was no immediate end in sight.
"We anticipate seeing contango at least until the end of the year," he told Reuters in a telephone interview.
"There is still a fair amount of oil on the water in VLCCs (Very Large Crude Carriers) and in storage around the world, and those won't disappear overnight. Inventory levels are high.
"I wouldn't be surprised to see in the next 3-4 months the oil at sea decreasing by a fair amount coming into the fourth quarter. But you still have a lot of oil to go through."
Global oil inventories are near record highs and 450-500 million barrels above normal levels -- equivalent to about 10 extra days of demand for the big developed economies, analysts say. On top of those stocks are another 140 million barrels of crude and oil products in floating storage, traders say.
EATING INTO STOCKS
Privately owned Mercuria, one of the world's five biggest independent oil trading companies, had a turnover last year of $47 billion with a net asset value of more than $1.1 billion.
Dunand did not discuss his company's own dealing positions but traders say Mercuria, along with most of the other big oil traders such as Vitol, Glencore and Gunvor, have made huge profits over the last year by trading around the contango.
Firms have bought oil, stored it on land and at sea and sold it later, exploiting low tanker rates squeezed by the recession.
Profits from these trades have inflated the balance sheets of traders and made them some of the most attractive customers in the debt markets at a time many other sectors are depressed.
On Wednesday, Mercuria announced a $685 million revolving credit facility that was heavily oversubscribed by banks.
Dunand said moves by the Organization of the Petroleum Exporting Countries to cut oil production had helped reduce the demand-supply imbalance but the impact on the market was slow.
"That takes time to feed through the system," he said. "The contangoes of today ... are nowhere near as wide as they were at the back end of last year when we had massive excess. So that means we are working our way through the inventories."
"As demand picks up you are going to see those stocks gradually decreasing. And unless OPEC increases its production very quickly, we are going eventually, coming into the fourth quarter and the first quarter of next year...to start eating into those stocks quite aggressively. And therefore we should see front to back coming in." (Editing by Keiron Henderson) ((christopher.johnson@thomsonreuters.com; +44 207 542 6056; Reuters Messaging: christopher.johnson.reuters.com@reuters.net))
Keywords: OIL/MERCURIA
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