This was an interesting read (as seen on another forum, no sauce listed)
Why Oil Is $1 a Barrel Now but Much More in Autumn
The price for a barrel of West Texas Intermediate crude to be delivered next month plunged 93% to $1.21 in Monday’s trading, the lowest price since the futures contract was launched in 1983. If that barrel were to be delivered to a buyer in November, it would be worth more than twenty five times as much.
The unusually large difference in price between oil now and then has traders filling up tankers and setting them adrift. The bet is that the
coronavirus pandemic runs its course and later this year demand for oil—and thus its price—will jump.
Some may have
little else to do with their oil other than put it on a boat, given the
historic collapse in transportation fuel demand that has accompanied shelter-in-place orders around the world aimed at slowing the spread of the deadly virus. Producers have been running out of places to send crude as refineries choke back their output to match the meager demand for gasoline or jet fuel.
The price gap widened Monday with expiration of the May futures contract set for Tuesday. The price of oil futures converge with the price of actual barrels of oil as the delivery date of the contracts approach.
“If you can find storage, you can make good money,” said Reid I’Anson, economist for market-data firm Kpler Inc.
Increasingly, traders are looking offshore. Lease rates have soared for very large crude carriers, the 2-million-barrel high-seas behemoths known as VLCCs.
The average day rate for a VLCC on a six-month contract is about $100,000, up from $29,000 a year ago, according to Jefferies analyst Randy Giveans. Yearlong contracts are about $72,500 a day, compared with $30,500 a year ago. Spot charter rates have risen sixfold, to nearly $150,000 a day.
Day rates rise as the spread between oil-futures contracts widens. The basic math is that every dollar in the six-month spread equates to an additional $10,000 a day that can be paid for a VLCC over that time without wiping out all the oil-price gains, Mr. Giveans said.
May delivery futures of Brent crude, the international benchmark typically used to price waterborne oil, ended Friday at $28.08 a barrel. The contract for November delivery settled at $37.17. The $9.09 difference wouldn’t justify a $100,000 day rate, but the record spread of $13.45 reached on March 31 does.
At the end of March there were about 109 million barrels of oil stowed at sea, according to Kpler.
By Friday it was up to 141 million barrels.
The collapse in current oil prices, combined with the expectations that a lot of economic activity will resume by autumn, has resulted in a market condition called contango—in which prices for a commodity are higher in the future than they are in the present.
One of the great trades in modern history involved steep contango and a lot of oil tankers. In 1990, Phibro, the oil-trading arm of Salomon Brothers, loaded tankers with cheap crude just before Iraq invaded neighboring Kuwait and crude prices surged. The trade’s architect, Andy Hall, became known for a $100 million payday and bought a century-old castle in Germany.
Present market conditions have inspired emulators.
In the past four weeks, nearly 50 long-term contracts have been signed for VLCCs, Mr. Giveans said. Jefferies has identified more than 30 of them as being intended for storage, usually because they are leased without discharge locations. The coast of South Africa offers popular anchorage since it is relatively equidistant to markets in Asia, Europe and the Americas.
“We’ve seen more floating-storage contracts signed for 12 months in last three weeks than we’ve seen in the last three years,” Mr. Giveans said.
Companies that own and operate pipelines and oil-storage facilities could gain as well.
Consider the difference between Friday’s prices for West Texas Intermediate to be delivered in May, which was $18.27 a barrel, and in May 2021, which closed at $35.52: A $17.25 spread could be locked in by buying contracts for oil to be delivered next month and then selling contracts for delivery a year later.
Assuming monthly costs for storage owners of 10 cents a barrel—as Bernstein Research analysts did when they ran back-of-the-envelope storage math in a recent note to clients—leaves a profit of $16.05 a barrel.
Companies don’t usually disclose unused storage capacity, but it is possible that bigger players such as
Energy Transfer LP,
Enterprise Products Partners LP and
Plains All American Pipeline LP could have room for tens of millions of barrels, the Bernstein analysts said.
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So basically, if you could find
somewhere to put the shit right now, you could make major bank this fall. Kiwi Farms Supertanker, anyone?
And while not a tree-hugger, it doesn't seem like anyone is considering the environmental ramifications of having all this crude oil sitting in supertankers in the meantime. All's it would take is (due to either terrorism or mechanical failure) for a couple of these supertankers to go tits up and it would make the Exxon Valdez spill look like a tiny dog and pony show.
CoronaChan could certainly work in other ways to off the population.
