{"id":6352,"date":"2015-03-09T06:00:42","date_gmt":"2015-03-09T11:00:42","guid":{"rendered":"http:\/\/olduvai.ca\/?p=6352"},"modified":"2015-03-09T06:00:42","modified_gmt":"2015-03-09T11:00:42","slug":"oil-price-faces-another-20-drop-due-to-contango-math","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=6352","title":{"rendered":"Oil Price Faces Another 20% Drop Due To Contango Math"},"content":{"rendered":"<h3 class=\"title\"><a href=\"http:\/\/www.zerohedge.com\/news\/2015-03-08\/contango-play-suggests-oil-could-head-much-lower\" target=\"_blank\">Oil Price Faces Another 20% Drop Due To Contango Math<\/a><\/h3>\n<p>Want to know where oil prices are headed?\u00a0<strong>You need to understand the economics of the floating storage play, Soc Gen says.\u00a0<\/strong><\/p>\n<p>As we noted on Friday, retail investors looking to be the next Jed Clampett have\u00a0<a href=\"http:\/\/www.zerohedge.com\/news\/2015-03-06\/crude-awakening-why-next-week-could-be-carnage-oil-etfs\">piled into<\/a>\u00a0the U.S. Oil fund over the past several months, presumably unaware of the extreme contango in the market. That said, it\u2019s not just retail investors who are itching to dive in. Here\u2019s Soc Gen:<\/p>\n<blockquote>\n<div class=\"quote_start\"><em>The motivation to buy it [is] widespread and not always based on traditional market analysis \u2013 consumers [are] keen to lock in lower prices with their newly expanded credit lines, due to the decline in the notional value of their existing hedges. Endowments and Sovereign Wealth Funds (SWFs) [are] under pressure to use the \u201copportunity\u201d to claw back recent losses.<\/em><\/div>\n<\/blockquote>\n<p>For those looking to make a play near the bottom, it\u2019s worth considering the level at which the oil storage trade becomes profitable. At its core, the trade is simple:<\/p>\n<blockquote>\n<div class=\"quote_start\"><em>A trader buys physical oil now at a low price, and simultaneously sells paper forward at a high price, thus locking in a profit margin. If this profit margin is higher than the cost of fixing a vessel to store it on, the trade works, and it should happen.<\/em><\/div>\n<\/blockquote>\n<p>Although, as Reuters notes, \u201cthe capacity of U.S. commercial oil storage tanks has expanded by a third since 2010,\u201d\u00a0<strong>the global stock increase is set to be nearly 3 times bigger than during the last oversupply period (in the aftermath of the crisis). Given that floating storage was used in 2008-2009, it\u2019s likely that cheaper on-land storage capacity will dwindle necessitating the use of crude carriers this time around as well.<\/strong>\u00a0And with that, here is your step-by-step guide to the floating storage play courtesy of Soc Gen:<\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Oil Price Faces Another 20% Drop Due To Contango Math Want to know where oil prices are headed?\u00a0You need to understand the economics of the floating storage play, Soc Gen says.\u00a0 As we noted on Friday, retail investors looking to be the next Jed Clampett have\u00a0piled into\u00a0the U.S. Oil fund over the past several months, [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[3],"tags":[4042,588,592,1775,4044,4043],"class_list":["post-6352","post","type-post","status-publish","format-standard","hentry","category-energy-2","tag-contango","tag-oil","tag-oil-price","tag-oil-price-collapse","tag-oil-storage","tag-soc-gen"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/6352","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=6352"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/6352\/revisions"}],"predecessor-version":[{"id":6353,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/6352\/revisions\/6353"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=6352"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=6352"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=6352"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}