• 6 minutes Trump vs. MbS
  • 11 minutes Can the World Survive without Saudi Oil?
  • 15 minutes WTI @ $75.75, headed for $64 - 67
  • 5 hours U.S. Shale Oil Debt: Deep the Denial
  • 6 hours Satellite Moons to Replace Streetlamps?!
  • 11 mins Knoema: Crude Oil Price Forecast: 2018, 2019 and Long Term to 2030
  • 35 mins Why I Think Natural Gas is the Logical Future of Energy
  • 2 days EU to Splash Billions on Battery Factories
  • 20 hours Owning stocks long-term low risk?
  • 22 hours The Dirt on Clean Electric Cars
  • 6 hours Can “Renewables” Dent the World’s need for Electricity?
  • 16 mins Get on Those Bicycles to Save the World
  • 2 days 47 Oil & Gas Projects Expected to Start in SE Asia between 2018 & 2025
  • 2 days The Balkans Are Coming Apart at the Seams Again
  • 2 days The end of "King Coal" in the Wales
  • 9 hours Closing the circle around Saudi Arabia: Where did Khashoggi disappear?
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

Trending Discussions

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…

To read the full article

Please sign up and become a premium OilPrice.com member to gain access to read the full article.

RegisterLogin

Trending Discussions





Oilprice - The No. 1 Source for Oil & Energy News