Here is a nifty chart that shows there is more oil, in raw capacity, in storage today than at any time since 1929.
And yet the spot-market price of oil is rising. USO is the symbol of US Oil fund, which tracks the spot price at a 1:1 ratio. Meaning that if the spot price rises by 2 percent, USO's price rises by 2 percent, too. Here is USO's one-month chart from Google Finance.
Oil spot trading is a futures market; contracts affecting today's price are for future delivery. The vast majority of traders are speculators, not buyers who actually want to take delivery of the oil. Since December, there have been massive inflows of dollars (oil is traded only in dollars) into speculative oil funds. These inflows have initially driven the funds' share prices higher, then those have dragged the spot-market oil contracts' prices up along with them. So in a real way, fund buyers expected the spot to rise so they decided to buy low. That made spot prices rise. A self-fulfilling prophecy.
That's not all that has made spot prices rise, of course. Over the last few months the US dollar has been intermittently devalued against other currencies. That means on the spot market that it takes more dollars to buy oil. Since oil is traded only in US dollars, a devalued dollar necessarily means the spot price has to go up.
But for investors or speculators who can stand the risk and suffer through the high volatility, it can be a very rewarding buy financially.
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