Oil Contango Pays Most in Decade as Shell Holds Crude in Ships

Quote from bt116:

How does one get long 'storage' only? Isn't that the trade here? Isn't Shell et al just betting that storage is trading way too cheap?
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What's to bet? If they can afford to finance the cost of purchasing oil now (i.e. the cost of borrowing money to pay for it (interest rate), or if they have the cash then the opporunity cost of not having it sat in a bank account earning interest), and afford the costs of storage of the purchased oil for x number of months, and the insurance costs, and still come out with a profit by selling it at an agreed price x number of months in the future, then they're going to do it.

There's no speculation per se. They are just using the futures market for it's original intended purpose - and locking in a known future profit.

No betting, no speculation. Just a known profit that they are happy is a sufficient rate of return.
 
Quote from shortie:

what's the risk here?
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the market is asking for storage. so this profit isn't really a 'free lunch' its more like the market is giving you salary for a service you can provide, the risk is small
 
If I had a means to do this, after locking 34% profit I would put 4% into long calls or bull spreads, thus getting additional upside.
 
they are holding the pysical which could drop to 25 or 30,so they are no doubt short some calls or futures against there long crude and it may work out that they make money while its sitting,its not a done deal that 40 is the low in oil,where is it parked,is there a risk of it being pirated,i'm sure some one is working in that direction, there is always risk
 
With shipping rates so low I wonder if companies like DRYS have thought about getting in on this trade rather than have their ships idle or sail for very low daily rates?
 
Just found this guys.....

http://www.cnbc.com/id/15840232?video=957884727&play=1

One thing I did overlook, which is a good point the guy made is the financing of margin calls should the back month selling positions go against them in the mean time....

I didn't quite agree with the 'manipulation' spin they put on it though. Surely companies like Shell and BP is exactly who the oil futures market was originially intended for, not Joe Public?! Mr Arm Chair investor can't get in on this strategy, so surely it must be manipulation right?!?! (sarcasm!!) ha ha
 
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