The recovering price of brent crude oil has made it less profitable to make long term bets on the commodity.
For those using floating storage to hoard oil, it’s become unprofitable, Reuters reports.
Because the futures contract price of oil is higher than the expected actual future price of that oil, the oil market has been in what is known as contango, meaning people are being compensated for storing oil for delivery in the future.
But as the price of brent crude has rallied in the last few weeks (currently just above $US60/bbl, up from $US46/bbl at the end of January), that trade is looking less profitable, particularly for traders that were storing oil on supertankers offshore.
While onshore storage tanks, such as in South Korea and in the United Arab Emirates, are still filling with surplus oil from the Middle East, Europe and Russia, grades like Abu Dhabi’s Murban and Iraqi Basra Light, stored on more expensive supertankers, have been sold, traders said.
Glencore’s head of oil, Alex Beard, said this week that the current pricing structure allowed for land-based storage but made more costly tanker storage unattractive.
Asian traders are also profiting from price hikes for Middle East Gulf grades, which will add a profit of $US1.20 a barrel for a cargo of Basra Light loaded in January and sold in April.
After deducting storage and financing costs of about 70 cents a barrel, traders could bag an estimated profit of $US3 million for a 2-million-barrel shipment over four months, from an outlay of around $US90 million.
It’s important to note that this so far doesn’t seem to apply to the US. The US uses the WTI crude benchmark, which, at a price of $US49.59 (up from $US44.08 in January) hasn’t recovered as much as brent. Crude exports in the US are for the most part banned, so American crude is piling up in storage waiting for a price recovery.
The US’s storage situation prompted Credit Suisse to warn last week that the US is approaching super contango.