Summer's a Coming

In a bullish sign for world crude prices, SK Corp., South Korea's largest oil refiner, last week purchased 700,000 barrels of oil for August delivery from ONGC, India's state-owned oil concern. The contract stipulates a $7.25-$7.50 premium above the average of Dubai and Oman crude, which implies a sale price of roughly $72.25, depending on the date of contract pricing. The announcement was made June 11th, which represented a $5 premium to Brent and a $7 premium to NYMEX as of the date of the announcement, for contracts of the same month. Not surprisingly, oil rallied the rest of the week. The "OTEN" "GO" function on Bloomberg provides a listing of similar transactions. Monday announcements may be worth reviewing.

If actions speak louder than words, then SK Corp is saying a lot. The company clearly believes it prudent to lock up supply, and the 10% premium to Middle East spot prices gives a good idea of where they think oil is headed this summer. The announcement also underscores the ability of refiners to deal directly with E&P. Do presumed levels of speculative buying in the futures market reflect these types of transactions?

Bloomberg Tickers: SK Corp: 003600 KS Equity; ONGC: ONGC IN Equity