Source:
reutersBackwardation "vortex" fueling oil's rally
Wed Oct 31, 2007 4:01pm EDT
By Richard Valdmanis and Robert Campbell
NEW YORK (Reuters) - Falling crude inventories and the shape of the futures curve will likely continue to feed back into each other and boost oil prices further until there is a meaningful change in the global supply picture.
Since July the market has been "backwardated," where the price of oil that is about to be delivered is higher than for later deliveries. Backwardation encourages the sell-off of stocks and is seen as a sign of supply tightness or even shortages, which further boosts prompt prices.
The current rally will likely go on until oil supplies rise or demand falls enough to reduce the incentive to sell off oil in storage, energy experts said on Wednesday.
"Given the economics of storing oil, it makes no sense to hold on to inventory right now. Storage owners are taking the economically prudent step and dumping inventories," said Stephen Schork, editor of the Schork Report.
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http://www.reuters.com/article/reutersEdge/idUSN3145897620071031