Oil prices in longest-ever period of contango

Oil markets are now in their longest-ever period of contango. This is when prices for future months are higher than current levels. According to Bloomberg, they have now been in contango for a record 656 days.
Keeping a barrel of crude in a tank on land costs 60 – 70 US cents/month, whilst hiring a supertanker costs $1.50/month.
So this is clearly excellent news for the blog’s friends in the storage and shipping industries, as well as in the trading community.
But a comparison with the previous record period of contango (640 days between October 2005 and July 2007), reveals the lack of logic behind the current speculative mania. Then, global crude oil consumption was rising rapidly from 82.2mbd in 2004 to peak at 85.6mbd in 2007, according to BP’s authoritative Statistical Review. But last year, demand was back at 84mbd, and is clearly still being hit by today’s high prices.
Where is the need to store record levels of oil and oil products, with this level of comfort in supplies? Especially as in the short-term, oil inventories are already rising still further as Western refineries shut for routine maintenance before the winter arrives. US operating rates are already down to 87% from July’s 91.5%, for example.
In addition, in terms of petchem feedstocks, OPEC has been rapidly increasing its NGL output. The International Energy Agency estimates this will rise 600kpd in both 2010 and 2011, to total 5.9mbd. It notes this volume will represent “7% of global oil output, up from negligible levels in the early 1990s“.
One day, crude oil markets will shift their focus back to these fundamentals of supply/demand. The blog used to think this correction could see prices slip back to $60/bbl. But now, with the mania having lasted so long, it is beginning to fear they could easily fall back to $40/bbl. This would be very painful for those in the real world of the chemical industry.