Anybody specializes in oil storage/transportation?

Quote from local:

This is a characteristic of futures contracts makes them generic in this sense.
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Just contango is not sufficient, we need super contango, am I right?

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 [/B]
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What exactly are the challenges in delivery? Lets do a deeper analysis?

Thank you!
 
Quote from mizhael:

Just contango is not sufficient, we need super contango, am I right?



What exactly are the challenges in delivery? Lets do a deeper analysis?

Thank you!
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As I have alluded to in previous posts the problem appears to be a lack of storage space. The exchange has addmitted it indirectly by proposing additional storage space at Cushing. Increading storage space may also be accomplished by increasing the number delivery points, I'm sure the exchange has explored that solution.

Will a super contango resolve the problem ? If I am the long and I have to roll my position at $8 in perpetuity, it is only a matter of time before the long position becomes a losing proposition and I liquidate. The case may also be made at $4 spreads. Therefore, from the perspective of the long, super contangos only accentuate the problem. The challenge for the exchange is to set parameters (specifications) that are palatable for both the short and the long. Fifteen or twenty years ago when there was less regulation the threat to a futures contract was always a sqeeze which was characterized by a large inverse. Spreads at excessive carries for an extended length of time is not something that that exchanges have had to deal with.

One more point. With most futures contracts the storage rates are set by the exchange. This is important because if it were allowed to increase to some astronomical level, the cost of carry could become prohibitive from the perspective of the long with the perpetual task of rolling a position. Thus, increasing the cost of storage may entice more available storage, but in the end it is very detrimental to the long and challenges the viability of the contract.

Regards, local
 
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