Lately, there’s been a lot of talk about that store in the largest oil hub in the US – Cushing – filled almost to capacity, but yet the fact that the filling associated with the oversupply and lack of demand.
Earlier this month Reuters reported that even before the download is complete repositories Cushing’s there are about 8 million barrels, and the terminal is already beginning to deny the traders in satisfying requests for storage of oil.
According to the energy information administration of the U.S. Department of energy oil reserves in storehouses of the USA has reached 504,1 million barrels – the highest since 1930
It’s possible that actually all the fault of speculators and so-called contango – when distant contracts are more expensive than near ones.
First, a little history. In 1862 one of the greatest American Industrialists Andrew Carnegie decided to capitalize on the storage of oil. He and his partner bought a few oil wells in Western Pennsylvania and dug up a giant tank for oil storage. Then the barrel was worth around $ 1 a barrel, according to BP Statistical Review. The idea was simple. The partners wanted to store the oil until the market supply will not increase and prices do not reach $10. However, the proposal is not decreased and the idea had to be postponed.
However, nowadays the idea of earning on the storage of oil is still alive and actively used by speculators. Moreover, modern financial market allows traders to avoid unnecessary risks. For example, it is now possible to simultaneously buy physical oil to store and sell distant futures to guarantee the price of supplies of this oil.
All you need to the cost of oil storage does not exceed the difference between the futures price and spot price and there was no doubt in possibility of delivery of oil within the specified period. Well, the best time for such speculation is difficult to imagine. The price difference between the March and April futures on WTI blend is now almost at the maximum for 4 years.
This is an important reason of the storage at Cushing is full. Traders without any risk, direct the oil in storage in Cushing. Bloomberg reports that last week the cost of storing one barrel of oil rose to $1,43, but it provides traders a profit.
It is important to note that Cushing is the hub on which the delivery of oil futures contracts, so that the storage of oil deprives the supplier of any delivery problems.