UsableMarkets

The FT has a nice piece by Javier Blas on how oil traders are making money in this environment of low-priced oil. To summarize: you have to be able to physically store oil.

From the article:

Mr Jensen said investment banks were joining oil companies and traders and entering into floating storage deals. Shipbrokers said that Phibro, a commodities unit of Citigroup, had also started hiring tankers for storage in the North Sea.

Traders are profiting from a record price difference between spot oil and future contracts that allows them to arbitrage physical barrels – buying spot oil and putting it into storage while, at the same time, selling a forward contract to lock in a profit.

The spread – which is in a condition called a contango, where future prices are higher than spot prices – is at a record high.

The difference between the price of West Texas Intermediate oil for immediate delivery and the one-year forward contract – a key indicator – yesterday widened to about $21.5 a barrel, the largest difference since US oil futures started trading 25 years ago.

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~alex