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VLO - (Valero) oil pricing contango

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VLO - (Valero Energy Corp's) core business is oil refining

65% of the oil that Valero processes
is purchased by Valero at prices determined by long term contracts
(35% is bought on the spot market)

such strategy reflects a "bet" placed on
continuing high future oil prices;
which reflects the current market contango conditions
WallStreetGecko.com

sort of like the recent real estate market
where expectations of future higher pricing
justified buying multiple houses
speculating that prices will continue to rise

problem is that if conditions,
such as an impending Turkisk invasion of Kurdish northern Irag,
dissapates, and thereby eases forward market pricing expectations,
well at such point in time the market might tend to become
flooded with product as current inventory gets sold off
in attempts to capture peak prices;

a market becoming "flooded" with product
would tend to result in a switch in future price expectations

Valero, which is contractually obligated to pay the prices
agreed to in their long term contracts,
might be adversely effected by a reduction of contango

I've reduced my exposure to Valero