Fuel for Thought

  • Can I Buy a Barrel of Oil?

Can I Buy a Barrel of Oil?

Nov 28 2015 Read 1000 Times

From updates on the commodities stock market to news stories exploring the state of the crude economy, oil is generally always referred to ‘by the barrel.’ It’s become an internationally adopted measurement, yet the concept of actually buying a barrel of oil remains ludicrous.

Back in 2008, reported Tracy Alloway decided to test this theory, attempting to purchase her very own barrel of oil. As executive editor at Bloomberg Markets, the endeavour was more than fitting. The move was spurred by a financial quirk that the stock market sphere refers to as a ‘contango.’ The term essentially describes an economic situation wherein the anticipated price of oil delivery is markedly higher than the immediate value.

Alloway explains, “The price of oil for future delivery was higher than the expected price of immediate ‘spot’ delivery.” In theory, it spurs commodities traders to stock up on petroleum, then sell it when the market gains value.

The reoccurring case of ‘contago’

While Alloway’s idea flopped at the time, the recent oil market crash inspired her to rekindle the experiment. Unfortunately, she quickly realised that in order to purchase a barrel of oil buyers must have watertight insurance policies in place, as well as storage space with ample ventilation. Neither of which Alloway possessed in her pint sized New York apartment.

“If gold is the equivalent of a pet rock, then I can confidently say that oil is the equivalent of playing host to a herd of feral cats; it demands constant vigilance and maintenance. If gathered in sufficient quantities, it will probably try to kill you, or at least severely harm your health,” muses Alloway.

So what amount of oil can be owned? In the end, Alloway settled for a modest jar of oil worth 24c on the current market. In March 2016, the price is expected to hit 31c. With zero storage costs and low financing costs, Alloway stands to pocket 7c. Not exactly big bucks!

The shale revolution

The world is developing an eco-friendly conscience, which means that ‘contango’ situations could soon be a thing of the past. ‘Hydraulic Fracture, Gas Seepage and Other Environmental Issues Concerning Shale Gas’ delves into the current shale boom currently underway in the USA, a development that has led to significant consumer price reductions, reduced reliance on imports and the national capacity to baseload electricity generation capacity to support the growth of renewable energy sources. It also explores the environmental controversies that have gone hand in hand with the shale surge, with a focus on the lessons other countries can learn from the American experience.

Image via Flickr Creative Commons. Credits: Daan Franken

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