Not Everyone is Losing Money
Pure traders are the only ones left standing in the crude oil speculation business now that oil prices have collapsed, sending hedge funds, college endowments and pension funds scampering. And these traders have found a new way to make solid double-digit profits. It's called betting on the contango.
What's contango? It's when the market as a whole bets that oil prices are going to steadily rise well into the future, and traders react by buying two contracts on the New York Mercantile Exchange -- say, one for the purchase of oil next month at $41.24 a barrel, and a second contract to sell it in February 2010 for the going rate of $60.22 a barrel. For those lacking a calculator, that's a cool 46% profit.
Here's the catch -- you've got to have some place to store the crude, and such places are so filled up that traders are now renting 2-million-barrel supertankers to store their contango bets.
I write about this as part of a story just posted on-line at Business Week.
What's contango? It's when the market as a whole bets that oil prices are going to steadily rise well into the future, and traders react by buying two contracts on the New York Mercantile Exchange -- say, one for the purchase of oil next month at $41.24 a barrel, and a second contract to sell it in February 2010 for the going rate of $60.22 a barrel. For those lacking a calculator, that's a cool 46% profit.
Here's the catch -- you've got to have some place to store the crude, and such places are so filled up that traders are now renting 2-million-barrel supertankers to store their contango bets.
I write about this as part of a story just posted on-line at Business Week.
Labels: big oil, contango, economy, oil trading, stimulus
3 Comments:
Portal's politics
http://www.ofpolitics.org
Mr. LeVine, with a book dubbed "The Oil And The Glory" I bet you'd dig my wee parody "Oh, Osama." It ain't your average Osama parody.
Stay on groovin' safari,
Tor
Here's a backdoor way to access this trade to get around the catch of storage, although I'm dying to store hundreds of thousands of barrels of crude in my backyard pool. Unfortunately my home owner's association frowns upon this type of behavior.
Nonetheless, I think buying shares in integrated oil and gas companies would give you access to the Contango. Royal Dutch Shell (RDS.A) or BP Plc (BP) mentioned in some of the articles seem like obvious beneficiaries.
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