Anybody specializes in oil storage/transportation?
- Thread starter mizhael
- Start date
Q
http://en.wikipedia.org/wiki/West_Texas_Intermediate
Anomaly in 2011
In Feb. 2011, WTI was trading around $85/barrel while Brent was at $103/barrel. The reason that most cite for this anomaly is that Cushing has reached capacity, depressing the oil market in North America which is centered on the WTI price. However, Brent is moving up in reaction to civil unrest in Egypt and across the Middle East. Since stockpiles at Cushing cannot be easily transported to the Gulf Coast for export, WTI crude is unable to be arbitraged in bringing the two back into parity. This large spread is likely to continue until unrest across the middle east subsides or fleets of trucks start hauling oil from Cushing,OK to Port Arthur,TX.
UQ
http://en.wikipedia.org/wiki/West_Texas_Intermediate
Anomaly in 2011
In Feb. 2011, WTI was trading around $85/barrel while Brent was at $103/barrel. The reason that most cite for this anomaly is that Cushing has reached capacity, depressing the oil market in North America which is centered on the WTI price. However, Brent is moving up in reaction to civil unrest in Egypt and across the Middle East. Since stockpiles at Cushing cannot be easily transported to the Gulf Coast for export, WTI crude is unable to be arbitraged in bringing the two back into parity. This large spread is likely to continue until unrest across the middle east subsides or fleets of trucks start hauling oil from Cushing,OK to Port Arthur,TX.
UQ
Read the contract specifications and then contact an economist at the exchange re taking delivery. Each delivery process is unique. From my experience, once you take delivery of the nearby, you must be prepared to fully margin the short side of the spread for the next month until you re-deliver. That is, if the futures go up $10 over the next month before redelivering you have to margin the position. You may not be given credit for your cash position.
Regards, local
Regards, local
@local , i am giving my view here, as you are well experienced in this area please correct my view as needed.
few days ago April/March spread peaked at $4.25 , today what at $2.75 level ??
$4.25 spread is the day I posted about
- Renting a tanker along with "Buy March/Sell April "
- take March delivery , store it for a cost of $1 for one month
- and deliver for April contract
and pocket $3.25 profit , that is $3250 per contract , for 1000 contracts ( small tanker ) profit is $3.25 millions
for this reason I posted , that spread will diminish at least by $1 to $3.25 , now we are even below that
Here is why the spread is diminishing last 2 days ( and may diminish more based on Friday events .. )
- actual physical crude oil delivary is 1 month after the contract expire , now with the new tensions in Suez/Iran , 1 month from now the actual physical delivary time OIL may be in better demand not withstanding this ' consumer oil demand /economoy' slow growth etc..
- few days ago with out Suez/Iran moving and Egypt settled oil might looked little bearish from economic growth etc.. factors , but now with this new situation it is no longer especially MARCH crude is not that BAD (not $4 less worth) compared to APRIL....
few days ago April/March spread peaked at $4.25 , today what at $2.75 level ??
$4.25 spread is the day I posted about
- Renting a tanker along with "Buy March/Sell April "
- take March delivery , store it for a cost of $1 for one month
- and deliver for April contract
and pocket $3.25 profit , that is $3250 per contract , for 1000 contracts ( small tanker ) profit is $3.25 millions
for this reason I posted , that spread will diminish at least by $1 to $3.25 , now we are even below that
Here is why the spread is diminishing last 2 days ( and may diminish more based on Friday events .. )
- actual physical crude oil delivary is 1 month after the contract expire , now with the new tensions in Suez/Iran , 1 month from now the actual physical delivary time OIL may be in better demand not withstanding this ' consumer oil demand /economoy' slow growth etc..
- few days ago with out Suez/Iran moving and Egypt settled oil might looked little bearish from economic growth etc.. factors , but now with this new situation it is no longer especially MARCH crude is not that BAD (not $4 less worth) compared to APRIL....
@local great posts from you .
Say I did march long/April short and took march physical delivery , that is huge money to put-up , say we got that financing done.
Say for 1 contract ,we come up with $87,000 and took march physical
Coming back to April where we are in short, even if price shoot up by $10 , that is only $10k we need additional funds.
I did not understand your point of full margin for April . My view is hard part is coming up with huge money to take march physical delivery .
Appreciate if you can elaborate
Say I did march long/April short and took march physical delivery , that is huge money to put-up , say we got that financing done.
Say for 1 contract ,we come up with $87,000 and took march physical
Coming back to April where we are in short, even if price shoot up by $10 , that is only $10k we need additional funds.
I did not understand your point of full margin for April . My view is hard part is coming up with huge money to take march physical delivery .
Appreciate if you can elaborate
http://www.bloomberg.com/news/2011-...k-in-new-york-as-mideast-protests-spread.html
Q
Brent-WTI Spread
A glut of oil at Cushing, Oklahoma, the delivery point for the U.S. futures, has weighed on New York prices relative to Brent. The difference between the April contracts in London and New York was at $13.70 a barrel today, compared with $13.75 yesterday.
âWTI prices do not make any sense, the discount to European oil is far too big,â said Juerg Kiener, chief investment officer at Swiss Asia Capital Ltd. in Singapore, a fund manager. âGeopolitical tensions will remain and as such any set-back in prices will be a buying opportunity.â
Oil supplies at Cushing jumped to a record 38.3 million barrels in the week ended Jan. 28. Inventories were at 37.7 million in the seven days through Feb. 11, according to Energy Department data.
The spread narrowed yesterday from $15.94 on Feb. 16, as Brent dropped 1.2 percent compared with a 1.6 percent gain in West Texas crude.
Brent Strength
Brentâs rise above $104 a barrel in intraday trading yesterday may have prompted some investors to sell contracts and take profit, said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore.
Brentâs 14-day relative strength index, which measures how fast prices have risen or fallen, advanced to 60 today, according to data compiled by Bloomberg. A reading of 70 of more signals to some traders that a market is âoverbought.â
âThe trend is likely for oil prices to strengthen and the gap to narrow, with WTI catching up with Brent in the coming months,â said Purvinâs Shum.
UQ
Q
Brent-WTI Spread
A glut of oil at Cushing, Oklahoma, the delivery point for the U.S. futures, has weighed on New York prices relative to Brent. The difference between the April contracts in London and New York was at $13.70 a barrel today, compared with $13.75 yesterday.
âWTI prices do not make any sense, the discount to European oil is far too big,â said Juerg Kiener, chief investment officer at Swiss Asia Capital Ltd. in Singapore, a fund manager. âGeopolitical tensions will remain and as such any set-back in prices will be a buying opportunity.â
Oil supplies at Cushing jumped to a record 38.3 million barrels in the week ended Jan. 28. Inventories were at 37.7 million in the seven days through Feb. 11, according to Energy Department data.
The spread narrowed yesterday from $15.94 on Feb. 16, as Brent dropped 1.2 percent compared with a 1.6 percent gain in West Texas crude.
Brent Strength
Brentâs rise above $104 a barrel in intraday trading yesterday may have prompted some investors to sell contracts and take profit, said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore.
Brentâs 14-day relative strength index, which measures how fast prices have risen or fallen, advanced to 60 today, according to data compiled by Bloomberg. A reading of 70 of more signals to some traders that a market is âoverbought.â
âThe trend is likely for oil prices to strengthen and the gap to narrow, with WTI catching up with Brent in the coming months,â said Purvinâs Shum.
UQ
@local , on second thought my understanding improved. I will walk-thru an example of my understanding , appreciate your input
1/ say I traded March long/April short at prices. $87/$90
2/. Took delivery march month 1 contract by paying $87,000
3/ now I am April short at $90 , price shot up to $100 at the expiry of April contract
4/ now April physical delivery is 1 month away after contract expiry, seems I need to keep funds with exchange $100,000
5/ once I deliver April physical , then exchage release my $100,000 , then I realize my profit $3000
6/ storage rent and other costs are say $1000 , my net profit is $2000
7/ for this $2k profit I need to come up with $87,000 + $100,000 for about 2 months
8/ for $200,000 interest for 2 months ( at (6% ) is $2,000
9/ so it is barley giving interest return , after so much hard work, this may be the reason this spread trades with storage and re-deliver may not be that profitable as it looks on simple $3 price difference calculation Due to 100% margin money is locked up on 2 contracts ( not 1 contract )
1/ say I traded March long/April short at prices. $87/$90
2/. Took delivery march month 1 contract by paying $87,000
3/ now I am April short at $90 , price shot up to $100 at the expiry of April contract
4/ now April physical delivery is 1 month away after contract expiry, seems I need to keep funds with exchange $100,000
5/ once I deliver April physical , then exchage release my $100,000 , then I realize my profit $3000
6/ storage rent and other costs are say $1000 , my net profit is $2000
7/ for this $2k profit I need to come up with $87,000 + $100,000 for about 2 months
8/ for $200,000 interest for 2 months ( at (6% ) is $2,000
9/ so it is barley giving interest return , after so much hard work, this may be the reason this spread trades with storage and re-deliver may not be that profitable as it looks on simple $3 price difference calculation Due to 100% margin money is locked up on 2 contracts ( not 1 contract )
Monday commentary from Lloyd's Shipping Rates subscription via Reuters:
"VLCC rates have been volatile in recent months due to a supply overhang. Average VLCC rates plunged last October as the end of a speculative trading play, which at one point last year involved an estimated 100 million barrels of crude oil held on tankers at sea, meant the market was awash with tankers.
Rates then jumped to their highest in over four months on Nov. 2 at $42,517 a day, helped by a flurry of fixtures from Chinese crude oil buyers in particular.
VLCC rates from the Gulf to the United States DFRT-ME-USG were at W43.57 on Monday from W37.89 last week. Rates from West Africa to the U.S. Gulf were at W61.96 from W52.32 last week.
Rates for suezmax tankers on the Black Sea to Med route were at W79.42 from W81.92 last week.
Cross Mediterranean aframax tanker rates were at W82.40 from W87.19 last week."
Again, guys, much ado about an arbitrage that is not practical in reality. Tanker rates are high, because few are available. Why are few available? They are being used as floating storage. The Brent and Cushing fungibility is modest and constrained - you couldn't get rack space at Cushing to save Lady Gaga's soul. We are awash in crude oil, and refinery demand is down about 5% YoY. Both Brent and WTI are essentially financial proxy contracts with very modest (and fragile) fungibility.
Platt's and Lloyd's have excellent tanker and barge information available.
"VLCC rates have been volatile in recent months due to a supply overhang. Average VLCC rates plunged last October as the end of a speculative trading play, which at one point last year involved an estimated 100 million barrels of crude oil held on tankers at sea, meant the market was awash with tankers.
Rates then jumped to their highest in over four months on Nov. 2 at $42,517 a day, helped by a flurry of fixtures from Chinese crude oil buyers in particular.
VLCC rates from the Gulf to the United States DFRT-ME-USG were at W43.57 on Monday from W37.89 last week. Rates from West Africa to the U.S. Gulf were at W61.96 from W52.32 last week.
Rates for suezmax tankers on the Black Sea to Med route were at W79.42 from W81.92 last week.
Cross Mediterranean aframax tanker rates were at W82.40 from W87.19 last week."
Again, guys, much ado about an arbitrage that is not practical in reality. Tanker rates are high, because few are available. Why are few available? They are being used as floating storage. The Brent and Cushing fungibility is modest and constrained - you couldn't get rack space at Cushing to save Lady Gaga's soul. We are awash in crude oil, and refinery demand is down about 5% YoY. Both Brent and WTI are essentially financial proxy contracts with very modest (and fragile) fungibility.
Platt's and Lloyd's have excellent tanker and barge information available.
Investvision,
Check #4, margin for one contract (J) approx. $5,000, additional $10,000 if market moves $10 higher. Not sure how you get $100,00. Investment then closer to $100,00 than $200,000. If net return is approx. $2,000 on an investment of $100,000 over the period of 1 month that is 2%, extrapolate that over 1 year, 24% per annum.
A couple of points from this;
Where else can a futures trade guarantee a profit, much less 24% ? The deferred spreads are not giving you the opportunity to execute this over the period of a year, but if the present conditions persist it could in the future.
Another way of looking at this is the rate at which you borrow capital to finance the trade and the rate which you can capture,in the above example 24%. Approaching the trade with this philosophy, you should be indifferent whether it is crude, grain or any other commodity future that presents the above opportunity. This is a characteristic of futures contracts makes them generic in this sense.
In the above example, I stressed the need for additional capital should the market move against the short J position. With crude you only have to carry this position 1 month so the added cost of funding the short position is less than that of other commodities that list spot months 2 or 3 months apart.
The above trade is predicated upon the ability to take delivery. If the delivery process breaks down it may not be possible to take delivery and the above becomes hypothetical. From my experience of changing delivery specs of futures contracts and designing new contracts, the delivery process is the single most important spec of a futures contract, bar none.
Regards, local
Reag
Check #4, margin for one contract (J) approx. $5,000, additional $10,000 if market moves $10 higher. Not sure how you get $100,00. Investment then closer to $100,00 than $200,000. If net return is approx. $2,000 on an investment of $100,000 over the period of 1 month that is 2%, extrapolate that over 1 year, 24% per annum.
A couple of points from this;
Where else can a futures trade guarantee a profit, much less 24% ? The deferred spreads are not giving you the opportunity to execute this over the period of a year, but if the present conditions persist it could in the future.
Another way of looking at this is the rate at which you borrow capital to finance the trade and the rate which you can capture,in the above example 24%. Approaching the trade with this philosophy, you should be indifferent whether it is crude, grain or any other commodity future that presents the above opportunity. This is a characteristic of futures contracts makes them generic in this sense.
In the above example, I stressed the need for additional capital should the market move against the short J position. With crude you only have to carry this position 1 month so the added cost of funding the short position is less than that of other commodities that list spot months 2 or 3 months apart.
The above trade is predicated upon the ability to take delivery. If the delivery process breaks down it may not be possible to take delivery and the above becomes hypothetical. From my experience of changing delivery specs of futures contracts and designing new contracts, the delivery process is the single most important spec of a futures contract, bar none.
Regards, local
Reag