Here's the big problem with oil. It's a great time to hoard it. With the glut of ships and day rates well below $20,000, it pays to fill up with oil and just keep it on a ship while prices go higher. Why not? I think that if I were still in the hedge fund business I would most definitely contract with Frontline (FRO) or Nordic American (NAT) to do so. It takes a lot of money to buy all of that crude, but it's a terrific trade and you can sell futures against it or sell it at a later date as Iran gets increasingly out of control.
You see, there are so many ships that are empty that the financial demand for oil can be filled rather easily.
And why not do it? When we see numbers from the likes of Home Depot (HD) and Macy's (M) that are blow-out -- regardless of the weather -- and they aren't affected by $3.65 gasoline, and when a weak European economy doesn't bring down the price of crude, to me it seems like a pretty darned good call to hold on and to buy.
I think that's a huge part of the problem. You have the number three oil producer backed into a corner, you have little cessation in oil use globally. So, how can you not risk taking down a ton of oil and storing it for a month for a million dollars?
Seems like an obvious trade to me and, of course, an obvious one to others. It only works because of the shipping glut, but the glut shows no end and neither does the tension in the Middle East.
