Why do newspapers say oil could reach $140 a barrel when the futures price is $95?

mark_cycling00

(Interested as I have to time purchases of heating oil)

The current futures price for oil in Dec 2022 is $95
https://www.theice.com/products/219/Brent-Crude-Futures/data?marketId=5166946&span=2

But I'm forever seeing news articles saying the price will rocket to $140+

I wouldn't expect big petrol suppliers to use on-the-day pricing for all their petrol. Could the futures contracts be cancelled/modified if oil sanctions are imposed?
Or have I misunderstood it all?

thanks!

QrizB

mark_cycling00 said:

The current futures price for oil in Dec 2022 is $95
https://www.theice.com/products/219/Brent-Crude-Futures/data?marketId=5166946&span=2
But I'm forever seeing news articles saying the price will rocket to $140+
I wouldn't expect big petrol suppliers to use on-the-day pricing for all their petrol. Could the futures contracts be cancelled/modified if oil sanctions are imposed?
Or have I misunderstood it all?

Futures aren't often the actual price of oil. Futures are what you would have to pay, today, for delivery of oil at the given date.

The only time that the futures price is genuinely the price of oil is when the futures cease to be futures and someone actually agrees to take delivery of oil at that price.

Futures vary from day to day, and the historic charts at The ICE don't give you the intra-day fluctuations; this is why the $140 price that you're "forever seeing" in news articles like this one doesn't appear there.

For more info than I can possibly write here, see https://en.wikipedia.org/wiki/Futures_contract

Flight3287462

If you were a trader you could go and but oil now for delivery end December 2022 for $95.  By Dec 22 the price could be $200 or $50, you pays your money and takes a chance. (You can't really buy the oil because you don't have a refinery so you would need to sell your contract before expiry)

Last week the oil price was over $130 and if this war doesn't get sorted $95 in Dec 22 might be cheap as chips.

Thrugelmir

Currently Brent crude is trading at $112

mark_cycling00

Flight3287462 said:

If you were a trader you could go and but oil now for delivery end December 2022 for $95.  By Dec 22 the price could be $200 or $50, you pays your money and takes a chance. (You can't really buy the oil because you don't have a refinery so you would need to sell your contract before expiry)

Last week the oil price was over $130 and if this war doesn't get sorted $95 in Dec 22 might be cheap as chips.

When I worked at (big oil co, BP as the fewest letters so go with that) many years ago it worked like this:
Big customer provides a demand schedule for every day in the next year, BP agrees price per day.
Big customer can then amend their schedule (add/subtract) but gets the new futures prices to buy/sell.
On the actual day any variance is priced all over the place.

So when Tesco/domestic-oil-co purchase petrol/oil do they have to purchase contracts at whatever the market is on that day? Or do they buy future contracts in advance? 

I'm struggling to work out why newspapers say the price will go higher when the futures price is lower.

The niggle in my head is "why did I buy lots of heating oil a few weeks ago that I won't use till winter, when the futures price for Dec 2022 is much lower". 

Flight3287462

The reason oil is cheaper on forward contracts is because they think the war will be over or other producers will cover the short fall by then and bring supply and demand back to equilibrium.

Having said that the US going cap in hand to Venezuela and nuclear deal with Iran suggests they don't like the long term outlook.