Oil Contango
February futures cost $5.45 a barrel more than January oil yesterday, based on Nymex settlement prices. That’s the biggest premium between the two most-active contract months in Bloomberg data going back to 1986. The spread allows oil traders who can line up credit and storage space to lock in profits by buying and holding crude to sell a month from now.
“If you can pick it up and hedge it forward and put in storage, then people will do that, but it seems like storage is already getting full,” said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “That time spread is unbelievable and it just shows you how worthless prompt crude is.”
Oil for delivery in January 2010 costs 53 percent more than crude for delivery in January 2009, increasing the opportunity for traders to profit. This price structure, in which crude for future delivery is more expensive than near-month prices, is known as contango.
Contango trading encourages companies to increase stockpiles. U.S. crude-oil supplies rose in 11 of the past 12 weeks, according to the Department of Energy. Inventories at Cushing, Oklahoma, where oil that’s traded on Nymex is stored, climbed 21 percent to 27.5 million barrels last week, the highest since May 2007, the government said on Dec. 17.
To contact the reporters on this story: Alexander Kwiatkowski in London at akwiatkowsk2
@bloomberg.net; Christian Schmollinger in Singapore at christian.s
@bloomberg.net.
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