• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 3 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 2 hours How Far Have We Really Gotten With Alternative Energy
  • 2 days Bad news for e-cars keeps coming
Dan Dicker

Dan Dicker

Dan Dicker is a 25 year veteran of the New York Mercantile Exchange where he traded crude oil, natural gas, unleaded gasoline and heating oil…

More Info

The Carry Trade Returns

In 2008, as money rushed out of the oil market and prices continued to collapse, a bottom for oil was nearly impossible to find. But one commercial factor gave a singular reason to buy front month futures when prices neared $40 and below: A ‘free money’ carry trade. Such an opportunity is again emerging in 2015 and heralding a bottom in oil prices.

Let me describe what the carry trade looks like: When prices disintegrate quickly in the oil market, as they did in 2008 and today in early 2015, the money disappears much more quickly in the ‘near’ months: Oil for delivery in February of this year, for example, closed yesterday at $48.65 a barrel. But the price for oil for delivery for February of next year in 2016 is $56.18, or almost 8 dollars more expensive. This is a condition we call ‘contango’, where prices on the ‘back’ of the curve are higher than those at the front.

A 12-month contango of $8 is plenty to start to initiate a ‘carry trade’ for commercial oil producers and here is how it works: If you can secure storage (not easy), you can buy the front month oil, put it away for a year and collect $8 a barrel when you deliver again in 2016. Your costs are only the cost for storage and the ‘money float’ that you lose in ‘banking’ saleable oil for a year. In both cases, if you find cheap enough credit (very easy), you’ve got it made: You can collect about $5 a barrel of ‘free money’, or more – a lovely return on a year’s investment.

Koch Industries was one…




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News