It´s not that this article is wrong, it´s that it´s so hugely uninformative.
Almost a dozen oil tankers carrying millions of litres of oil and gas have anchored off the British coast because the cargo\’s owners are waiting for prices to rise.
Well, yes, but why? The article tells us not.
The reason is:
Right now, you can buy oil for $36 a barrel. And you can lock in a contract to trade oil in June for $51.30. When futures prices are higher than current prices, it’s a situation called “contango.” Oil markets expect a little bit of contango, but the spreads we’re seeing today are off the charts.
Of course, any time there is a market anomaly this severe, there’s got to be a way to profit.
The Forbidden Contango
The reason such a large contango is rare is because it’s too easy to profit from it. If you were so inclined, you could right now buy the actual physical oil for $36 a barrel, keep it for six months and have a locked in price of $51 in June. Traders do this all the time. All of that buying and selling generally brings market prices to levels where there isn’t such a large profit to be made.
So where is the breakdown in today’s market? Storage capacity has run out. Oil tanks are filled to the brim. Instead of traditional on-shore tanks, investors have taken to borrowing tanker ships, filling them up, and letting them float offshore.
It´s not that tough to figure it out. So why didn´t the article say so?
Answers on a postcard to the Barclay brothers please.