The price of oil has dropped by almost $108 a barrel since last summer.

Both Tuesday’s $38.74 price and last summer’s $147 price were set by the same mechanism–supply and demand. Or more accurately, by what investors and traders believe about impending supply and demand.

Notice how neatly I bypassed the whole issue of whether anyone was rigging the market or upsetting it with hoarding, speculation and so on?

The law of supply and demand sounds so simple, but price is never really about having 6 apples in a basket and whether buyers are standing in line for 4, 3, 8 or 6 of them. Prices look forward to the line of customers that might queue up in the future. That’s why every bit of news that suggests this recession will go deeper and run longer sends the price of oil down again.

Supply doesn’t change when another recession headline breaks. Nor does the amount of oil we will use today. But traders do cut their estimates of how much oil the world will use next month, the next six months or in the next year.

The oil situation brings us another real-life example of how far from simple the supply-and-demand tradeoff really is. Demand has fallen so sharply that a whole new cost has entered the oil picture.

Storage. Prolonged storage, that is. The world is oversupplied in oil ready to go, and it is running out of places to put it. Land-based terminals are full. Refineries have all they need. Now tankers are turning into storage vats rather than carriers. Approximately 80 million barrels are sitting in tankers offshore waiting for demand to catch up.

The situation has led to another supply and demand oddity–a contango. This is when the price of a near-contract (oil to be delivered within a month or two) and spot prices (oil for delivery immediately) are lower than the price of oil to be delivered in later months.

Who benefits? Right now, companies like General Maritime (GMR) and Overseas Shipping Group (OSG) stand to make money despite low demand for carrying crude. Normally these very large tanker companies lack for work when demand is down, but now they have storage space to rent. And when demand returns, they’ll be back in their usual business again.