Storing oil in tankers for sale next year

[Tilted]

An interesting conversation about the disparity in prices for different oil futures contracts. There are a lot of economic indicators that are out of whack right now - that's why nobody really knows what is going on with the global economy, and just how bad (or good) it is.

Storing oil in tankers for sale next year.

 

[Larry Gude]

...

...that might have been a really interesting piece if that stupid broad wasn't getting paid by the word. BTW, did you know that yelling 'shut up, woman!' at the computer screen doesn't seem to work?

 

[The Oyster Guy]

Interesting way to turn a profit (if you're bullish on oil)... just store the oil in supertankers and sell later.

FWIW, I agree that oil is UNDERpriced at $43/bbl.

 

[Larry Gude]

...

Interesting way to turn a profit (if you're bullish on oil)... just store the oil in supertankers and sell later.

FWIW, I agree that oil is UNDERpriced at $43/bbl.

...oil is OVERPRICED at $30.

 

[The Oyster Guy]

...oil is OVERPRICED at $30.

Larry, you're hallucinating... oil will never touch $30/bbl again.

Once we get through this period of economic uncertainty (during which oil has been oversold), it's only going to go up.

 

[Tilted]

...that might have been a really interesting piece if that stupid broad wasn't getting paid by the word. BTW, did you know that yelling 'shut up, woman!' at the computer screen doesn't seem to work?

Does it work when you do it in person?

And you leave Erin alone - yeah, she likes to talk, but that's what they pay her for.

 

[Tilted]

Interesting way to turn a profit (if you're bullish on oil)... just store the oil in supertankers and sell later.

FWIW, I agree that oil is UNDERpriced at $43/bbl.

Just to be clear, they don't need to be bullish on oil to make this trade. They aren't buying the oil and hoping the barrel price goes up - they already know what they're going to get paid for it. They are taking advantage of an unnatural spread in the price for oil on a 1 month futures contract versus a 12 month futures contract.

They execute a buy contract for, say, Dec 2008, at $42/barrel, and a sell contract for, say, Dec 2009, at $57/barrel. They have already agreed on a contract and sale price for a year from now. There is essentially no market risk. They just have to finance the cost of the purchase, since they won't get the funds from the sell for a year. They also have to physically store the oil, since the buyer won't take delivery for a year. Basically they are getting paid $15 a barrel to store the oil and float the costs of the oil for a year.

The real issue is that there is such a wide spread on the contracts, and that financing costs are currently so low.

 

[Larry Gude]

...

Larry, you're hallucinating... oil will never touch $30/bbl again.

Once we get through this period of economic uncertainty (during which oil has been oversold), it's only going to go up.

....book marked.

 

[Larry Gude]

...

Just to be clear, they don't need to be bullish on oil to make this trade. They aren't buying the oil and hoping the barrel price goes up - they already know what they're going to get paid for it. They are taking advantage of an unnatural spread in the price for oil on a 1 month futures contract versus a 12 month futures contract.

They execute a buy contract for, say, Dec 2008, at $42/barrel, and a sell contract for, say, Dec 2009, at $57/barrel. They have already agreed on a contract and sale price for a year from now. There is essentially no market risk. They just have to finance the cost of the purchase, since they won't get the funds from the sell for a year. They also have to physically store the oil, since the buyer won't take delivery for a year. Basically they are getting paid $15 a barrel to store the oil and float the costs of the oil for a year.

The real issue is that there is such a wide spread on the contracts, and that financing costs are currently so low.

TOUCHDOWN!!!

You got it.

 

[The Oyster Guy]

Just to be clear, they don't need to be bullish on oil to make this trade. They aren't buying the oil and hoping the barrel price goes up - they already know what they're going to get paid for it. They are taking advantage of an unnatural spread in the price for oil on a 1 month futures contract versus a 12 month futures contract.

They execute a buy contract for, say, Dec 2008, at $42/barrel, and a sell contract for, say, Dec 2009, at $57/barrel. They have already agreed on a contract and sale price for a year from now. There is essentially no market risk. They just have to finance the cost of the purchase, since they won't get the funds from the sell for a year. They also have to physically store the oil, since the buyer won't take delivery for a year. Basically they are getting paid $15 a barrel to store the oil and float the costs of the oil for a year.

The real issue is that there is such a wide spread on the contracts, and that financing costs are currently so low.

Roger, thanks - that didn't register w/ me from watching the video.

But nevertheless, it seems that the market is betting that oil will go up, and that's my sense, too. Despite Larry's fervent prayers, after we pass through this economic rough spot, the price of oil can only increase.

 

[Tilted]

Roger, thanks - that didn't register w/ me from watching the video.

But nevertheless, it seems that the market is betting that oil will go up, and that's my sense, too. Despite Larry's fervent prayers, after we pass through this economic rough spot, the price of oil can only increase.

That's correct. That's why there is such a wide spread in the futures contracts. The people who buy and sell oil futures believe that the barrel price of oil is going up. (There's no way to know exact numbers, but I suspect that the longer the contracts, the more the buyers of the contracts tend to be actual consumers as opposed to 'speculators')

Those people's livelihoods depend on them understanding the issues that dictate spot prices, and my livelihood does not. So, I won't even try to guess whether they're wrong or right. The truth is there are too many variables that have yet to play out.