Traders locking up storage space for crude created a huge rift in prices Friday between oil that must be delivered in several weeks and oil that can be taken in February.
The January contract for crude expired Friday and with stockpiles rising at the key storage facility in Cushing, Okla., the price dropped to nearly a five-year low as brokers and traders attempted to unload supply for whatever price they could get.
"If you could find storage for it, it's a way to get rich real quickly," said Peter Beutel, an analyst with Cameron Hanover.
With space tight amid a glut in supply, light, sweet crude for January delivery fell $2.35 to settle at $33.87, a level last seen in early 2004.
Most traders focused on the February contract, however, which rose 69 cents to settle at $42.36 a barrel on the New York Mercantile Exchange. Because crude contracts bought for February also bought more time to find storage, it sold at a premium of more than $7 a barrel compared with contracts expiring Friday.
While the January price was largely discounted because the volumes were so low, analyst Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said it did provide a downside target for future sales.
The market is sending strong signals that an oversupplied market will remain in place for some time, he said, adding, "I think it's going to work its way down to today's lows in the January futures."
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