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Surge in floating storage signals short-term oil optimism - RBC

Published 06/23/2017, 04:34 AM
© Reuters. Surge in floating storage signals short-term oil optimism - RBC
  • A recent jump in floating crude storage despite being an uneconomic venture suggests traders expect oil prices to rally, RBC Capital Markets says.
  • “Physical energy traders have been willing to pay the ~10c/barrel differential between the front contango and the cost of floating storage for the regional optionality in hopes that the cost of carry becomes negligible if spot prices rally,” firm notes.
  • Front-month Brent contango near 25c/bbl while the cost of storing oil at sea for a month is ~35c/bbl, suggesting traders are expecting to unload the barrels at sea at a profit in coming weeks.
  • ETFs: USO, OIL, UWT, UCO, DWT, SCO, BNO, DBO, DTO, USL, DNO, OLO, SZO, OLEM, OILK, WTIU, OILX, WTID, USOI
  • Now read: High Yield Bonds Under Pressure


Original article

Latest comments

I think the opposite is occurring as so much oil is being produced that the storage capacity on land is near record levels. Storing oil on water is much more expensive, ties up shipping resources (oil shippers should see an increase in shipping value as ships available to move oil decreases) and is raising a risk of environmental accidents from spillage into the oceans or seas. It is much easier to fix a leak on land as versus water and the environmental hazards are easier to mitigate as well. Another thing flawed on the stories thinking that the more oil stored would point to a rise in price is that one must factor in the cost of storage is going to have to be absorbed by the producers. At some point wouldn't it be more prudent from an investment standpoint to not pump the oil and let it stay "stored" underground versus paying for storage on water or land? Has no one given any thought to viewing the oil underground as being in storage for free? Put oil in the ground for storage?
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