mercredi 25 mars 2015
The 16 Million Barrels of Pure Profit Sitting in U.S. Oil Tanks
Posted on 00:06 by nice news
Just as Wall Street says the U.S. was running out of room to store oil, it turns out there’s another 20 million barrels of empty space.
Where? Right at the top of the tanks.
A supply glut has dragged U.S. crude for May delivery almost $10 a barrel below contracts a year out. This market structure, known as contango, has encouraged traders to shove the most oil in 80 years into storage so they can sell it for more in the future. The problem is, tanks are filling up, according to banks from Bank of America Corp. to Citigroup Inc. and Goldman Sachs Group Inc.
That’s where the extra space comes in. There’s the normal “working” capacity. And then there’s “contingency” space, a buffer between the working storage and the tank tops that typically sits empty to keep oil from spilling out. The company that built most of the tanks at Cushing, Oklahoma, the biggest U.S. oil hub, says the buffer is about 3 to 5 percent of storage space. That’s equivalent to about 20 million barrels of room in tanks across the country.
“Their sole orientation is capturing the contango, and they’re pushing it as much as possible,” Rashed Haq, vice president at consulting firm Sapient Global Markets, who worked with a trader in November to model the use of his contingency space, said by phone March 17. “The difference between the working capacity and the tank top could be 1 percent, but that’s 1 percent of margin. That’s pure profit. That’s in the millions.”
Traders’ attempts to
Where? Right at the top of the tanks.
A supply glut has dragged U.S. crude for May delivery almost $10 a barrel below contracts a year out. This market structure, known as contango, has encouraged traders to shove the most oil in 80 years into storage so they can sell it for more in the future. The problem is, tanks are filling up, according to banks from Bank of America Corp. to Citigroup Inc. and Goldman Sachs Group Inc.
That’s where the extra space comes in. There’s the normal “working” capacity. And then there’s “contingency” space, a buffer between the working storage and the tank tops that typically sits empty to keep oil from spilling out. The company that built most of the tanks at Cushing, Oklahoma, the biggest U.S. oil hub, says the buffer is about 3 to 5 percent of storage space. That’s equivalent to about 20 million barrels of room in tanks across the country.
“Their sole orientation is capturing the contango, and they’re pushing it as much as possible,” Rashed Haq, vice president at consulting firm Sapient Global Markets, who worked with a trader in November to model the use of his contingency space, said by phone March 17. “The difference between the working capacity and the tank top could be 1 percent, but that’s 1 percent of margin. That’s pure profit. That’s in the millions.”
Traders’ attempts to
The 16 Million Barrels of Pure Profit Sitting in U.S. Oil Tanks
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