In early 2009, I did a segment on CNBC with Erin Burnett and the late Mark Haines, pointing out a way for us to band together and make some serious money.
I proposed we find the funds (or the financing) to buy currently priced oil on the physical markets, trading somewhere in the mid 30’s, and then selling the futures about six months out, which were trading for nearly $15 dollars a barrel more.
A simple idea – we would store the oil, pay the fees, and deliver at the futures price later, banking about, I estimated, 11 dollars a barrel – a huge profit in any language. There were problems with the plan, however; credit was, in the depths of the financial bust, nearly impossible to find, and you needed storage as well, also a really tough problem with collapsing demand and economies shutting down.
I wasn’t a genius in devising this scheme, of course. Those who had ready credit and ready storage – like Koch and Conoco-Phillips – were already doing this primitive ‘carry trade’ and making those fortunes denied to Erin, Mark, and I. However, I was, I think, the first crude observer to bring the idea of a profitable oil carry trade to the public eye.
Since then, over the course of many years, there’s been an increasing interest in the spreads between futures and what it might portend for prices and the movements of oil in storage. Today, there’s a virtual frenzy of discussion about what are almost…