Want to make some money? Look at Oil Contango, it’s the highest in history and set to come down
I trade energy and this is something I have been watching for some time now. Oil is one of, if not the most widely held commodity in the world. Spot oil is getting crushed along with every other asset class as we go through this whole deleveraging process, but what of the forward markets? Oil is currently trading at $50. What would you say if I told you oil was trading right now in the futures markets at $82 in Dec/2013. That’s right, $32 of contango. How’s the liquidity in the long end? Not bad, you won’t be able to do hundreds of millions out there but it’s not bad. So go find a ground or a tank and store some oil for 5 years… if anyone out there has access to oil storage, I have access to capital to fill up those tanks. There has never been this much contango in the oil markets and there should be a physical limit as to how far this spread can go and it is dependent on the amount of oil storage space available (lots actually) and the cost of carrying that inventory. The moment you see the mention of a war or even a cessation in the deleveraging, you will see this contango shrink back down to normal levels of around $10. A huge win…
Good to see you here again.
For those of without storage tanks or futures accounts….can’t we buy a few calls on some Big Oils or service companies or something?