Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Futures markets in petroleum have finally reacted to this prompt price pressure, although I would argue that 2010 is beginning to be reasonably prompt in the crude markets.  Back in the dark ages when I sat on an energy derivs desk, the first 5 years of WTI were very liquid.  only about 1.5-2 years in products (if that).  

Anything further out was "interesting" from the standpoint of how to make a market.  Typically, there were sellers of crude out 5-15 years as the smaller oil producers that had to get bank financing to develop their projects were also required to hedge some of that production.  2 reasons.  First, the banks wanted to lay off some of the risk of the loan.  Second, the banks want to generate even more fees by acting as middlemen on the paper.

What was hard was finding buyers that far out.  Truckers, shipping co.s, and airlines would sometimes buy 2-3 years out.  And no forward bids from real mogas users.  What you had was us Wall Streeters making a market based on averages and front period hedges/options whatever.

My gut feel is that the hedge funds are beginning to stick their toes in the water on forward oil as bids.  These markets are thin.  It doesn't take a lot of money to bid them up.  Also forward sellers probably backing off as they are reading all these pessimistic oil price predictions and see no reason to hedge.  Dec 2010 at $55/bbl is pretty amazing price.

I've no real idea if CERA has done their homework or not, but the LNG projects are about to come on line all over the place.  Qatar, Aussie NWS, Nigeria etc.  There are huge deposits of light hydrocarbons that have been waiting for these higher prices to become economic.

by HiD on Sat Jun 25th, 2005 at 02:26:53 AM EST
Until fairly recently, the forward curve basically looked like a nice asymptote going from the best bet for prices one year away (a liquid market as you say) to the expected long term mean of 20$ or so. So there was no "market" as such, only an expectation of things "coming back to normal" from wherever they were in the short term.

The interesting thing today is that the forward market (or whoever is able to dominate it, if, as you say, it's a failry illiquid market) is telling us that they expect the long term mean to be above 40 or even more. Not enough people are currently willing to bet that it will "ever" come back below that level. This IS new information from the oil markets, right or wrong.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Jun 25th, 2005 at 02:55:16 AM EST
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