Playing It Smart On Oil

Buying a supertanker's worth of crude oil at $35 a barrel (after all, lots of idle supertankers just floating around in this global recession) and storing it until prices double is smart. Buying at $70 a barrel in anticipation that prices will continue to rise is just telling you something.

The giant US bank JPMorgan Chase has reportedly hired a newly-built supertanker to store heating oil off the Mediterranean island of Malta. Other companies, including BP and a unit of Citigroup, have also hired ships to store either crude oil or oil products.

According to Bloomberg.com, “Traders were already using smaller tankers to store record volumes of jet fuel and heating oil in Europe as on-shore tanks filled up.”

This latest move comes amid suggestions that recent increases in oil prices may be the result of speculators looking for a new financial bubble, prompting fears that increases in energy costs could stall any hope of an economic recovery.

According to MSNBC, “Even though most analysts say crude is still overpriced, the market has created its own momentum with an enormous amount of money fleeing equity and currency markets. … With so much money flowing into the market, prices are likely to hold close to where they are, until market fundamentals can take hold.”

It has recently been suggested, however, that “prices will fall substantially” once speculators run out of storage.

The practice of storing oil on ships began last winter, when the price went as low as $32 a barrel. Bloomberg reported in January that the world’s biggest owner of supertankers, Frontline Ltd., had already hired out about 20 supertankers for oil storage and had requests for up to 10 more. “I’ve never before seen storage demand on this scale,” a shipbroker told Bloomberg.

It's like financial oil speculators expect oil to go back to triple digits or something. Gosh, I wonder what that will do to the economy should Americans find themselves paying $3-$4 a gallon for gas.

Again.