Tango with Contango

Commodity traders are celebrating the return of the contango trade with anticipation of the most profitable year since 2008 in the offing.

After several years of less lucrative market activity the recent decline of oil prices by more than 60% from the June 2014 high has opened up trading opportunities for the commodities firms who profit off of volatility and speculative activities.

One of the ways these firms profit are by buying oil at the current “spot” price and storing it for delivery at a later date at a higher price. One of the oddest methods utilized by these firms is the renting of oil supertankers and keeping them offshore as floating storage tanks.

According to the Portland Press Herald, “As many as 60 million barrels could be held offshore within the next several months, the Vienna-based consultant predicted Jan. 6. Traders stored 100 million barrels at sea in 2009, Frontline Ltd., a tanker owner, said at the time.”

While the recent drop in oil prices are providing a much appreciated respite for consumers who are able to save at the pump, and negative effects of the downturn could end up having a very adverse effect on the improving employment numbers and the goal of US Energy Self-Sufficiency. Among the longer-term knock on effects could be a decline in renewable energy innovation, a shift in consumer attitudes away from green-energy transportation and back toward gas guzzling SUV’s, and a dissipation of political will to press forward on the Keystone XL Pipeline project and removal of the crude oil export ban.

[Financial Times][Wall Street Journal][Portland Press Herald]

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