As oil prices fall, will a contango arbitrage opportunity arise? I think so!
While some have thought the prediction of Scott Bleier that oil and commodities would fall after they reached outrageous prices that didn't line up with the fundamentals was precient, I don't think it was very hard to predict.
In the middle of July Bleier said oil was going to plunge to $100 a barrel, when it have made significant moves upward. Of course you had the usual clueless that got caught up in the euphoria who started predicting $200 a barrel in the near future, which made Bleier's prediction seem even more prescient.
Of course Bleier was even being too conservative in his projections, as they fell further than even he thought.
Now, as world demand is plummeting, and credit extremely difficult to get, he's predicting oil will fall to as low as $50 a barrel. It very well could.
The major reason that could happen is because cash-hungry institutional investors have been selling their positions in commodities like oil to become more liquid. That and slowing demand because of consumers cutting back on unnecessary driving and traveling is driving the price of oil and other commodities down.
Who knows, it could go below $50 a barrel, even with OPEC meeting next month to possibly reduce production by 1 million barrels a day in hopes of stopping the fall in oil prices.
Scott Bleier is president of Create Capital.
Oil as a commodity looks like it could provide an excellent contango arbitrage opportunity when oil rebounds.
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