Get ready. The only way out of this is to devalue the dollar to the point that the past debts can be paid off in full, quickly and painlessly. Rampant Inflation is coming your way - hope you don't have loads of cash on hand come May or June.
It won't happen that soon. As long as there is a glut of oil on the market and no demand for it there can be no inflation. In the worst year ever for oil, investors can lock in the biggest profits in a decade by storing crude. The contract now is cheaper than next month by a good margin. When USO renews the contract they will sell the current for less than next months contract (causing a loss of some money). When we were in backwardation, it was the opposite, exactly why USO had great returns above and beyond actual crude. Since it is lower today, capitalists are buying the crude now and selling the contract for some arbitrage (riskless money). This arbitrage opportunity probably would not be available if we weren't so deep in this credit crunch. The premium, known as contango, is the biggest for a 12-month span of futures since 1998, when a glut drove crude down to $10. Saw a story on Bloomberg the other night talking about how the December contract has come in quite a bit (about $7 from early Jan prices) and Shell actually unloaded and sold the crude it had one of the supertankers it leased for storage because the storage costs were infringing on the risk/reward basically. The lower that December contract goes the more it will force the traders to liquidate, flooding the market again and further depressing prices.
The tankers are a bigger deal than most people are thinking; one tanker can store 26 million barrels, not much you say? Consider that the normal storage facility in Cushing, OK only holds 22.9 million barrels. Granted that in the case of the tanker that Shell just recently unloaded they were only storing about a tenth of that, it would be interesting and helpful to know just exactly how much oil is sitting on tankers around the world.
Either way you slice it, there is a serious glut of oil in the market and with reduced leverage available to the traders, fundamentals may become more important going forward.
Simple math. What's the maximum number that can be stored? How many tankers are out there? Then look at the daily oil production versus daily consumption. All tankers can't be used for storage or else commerce would stop. Unless demand goes up soon the production will outpace consumption. Production will continue because oil is money. The producers need the oil money so what they don't officially show on their records are being sold in the black market.
I see demand staying low, oil going down and no inflation anytime soon. I agree with you that hyper inflation is coming but not till demand for oil increases - that ain't happening anytime soon.