SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  For example, here is how to disable FireFox ad content blocking while on Silicon Investor.
Gold/Mining/Energy : Big Dog's Boom Boom Room

 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
From: JimisJim3/4/2015 2:52:52 PM
1 Recommendation

Recommended By
isopatch

   of 198654
 
This helps explain the differing viewpoints on available storage: Oil-storage trade

The oil-storage trade, also referred to as 'contango', a market strategy in which large, often vertically-integrated oil companies purchase oil for immediate delivery and storage—when the price of oil is low— and hold it in storage until the price of oil increases. Investors bet on the future of oil prices through a financial instrument, oil futures in which they agree on a contract basis, to buy or sell oil at a set date in the future.

Investors can choose to take profits or losses prior to the oil-delivery date arrives. Or they can leave the contract in place and physical oil is "delivered on the set date" to an "officially designated delivery point", in the United States, that is usually Cushing, Oklahoma. When delivery dates approach, they close out existing contracts and sell new ones for future delivery of the same oil. The oil never moves out of storage. If the forward market is in "contango"—the forward price is higher than the current spot price—the strategy is very successful.

The strategy works because oil prices for delivery in the future are trading at a premium to those in the spot market - a market structure known in the industry as contango - with investors expecting prices to eventually recover from the near 60 percent slide in oil in the last seven months.

—Reuters 2015
Chronology
Scandinavian Tank Storage AB and its founder Lars Jacobsson introduced the concept on the market in early 1990 But it was in 2007 through 2009 the oil storage trade expanded. Many participants—including Wall Street giants, such as Morgan Stanley, Goldman Sachs, and Citicorp—turning sizeable profits simply by sitting on tanks of oil. By May, 2007 Cushing's inventory fell by nearly 35% as the oil-storage trade heated up.

"The trend follows a spike in oil futures prices that has created incentives for traders to buy crude oil and oil products at current rates, sell them on futures markets and store them until delivery."

—Financial Post 2009

By the end of October 2009 one in twelve of the largest oil tankers were being used more for temporary storage of oil, rather than transportation.

From June 2014 to January 2015, as the price of oil dropped 60 percent and the supply of oil remained high, the world's largest traders in crude oil purchased at least 25 million barrels to store in supertankers to make a profit in the future when prices rise. Trafigura , Vitol, Gunvor, Koch, Shell and other major energy companies began to book booking oil storage supertankers for up to 12 months. By 13 January 2015 At least 11 Very Large Crude Carriers (VLCC) and Ultra Large Crude Carriers (ULCC)" have been reported as booked with storage options, rising from around five vessels at the end of last week. Each VLCC can hold 2 million barrels."

--From Wikipedia
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

Copyright © 1995-2018 Knight Sac Media. Data provided by IEX, Alpha Vantage, Coinbase, Binance, Fintel and CityFALCON News - See Terms of Use.