Producers’ mindset needs to change
Storage logistics have never been more challenging, playing to oil traders’ strengths. Pure producers’ structural lack of patience may only assists them
Oil trading companies’ mastery of storage economics in a contango market—where future, so-called ‘curve’, prices are higher than the immediate physical market—bears comparison to investment banks. Just like M&A activity, IPOs and other relatively low-risk banking functions, storage plays are seemingly simple. Work out the cost of storing oil and, when the price difference between prompt and curve exceeds that cost, buy the barrels, pay for the storage, sell the volumes in the futures market and pocket the difference. But, in practice, it is much more complicated. For example, management of physical oil pricing based on Dated Brent using contracts for difference (CFDs), exchange of futur
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