Posted on 03/31/2015 5:11:30 AM PDT by thackney
As U.S. crude oil stockpiles soar, CME Group Inc. has come up with an innovative way for energy producers to reserve space in storage facilities.
The ability to trade oil futures contracts has been around since 1983, but on Monday, the first ever oil-storage futures contract goes live. One contract bestows upon its holder the right, but not the obligation, to store 1,000 barrels of crude oil in caverns or above-ground tanks in Louisiana.
Three grades of sour crude are eligible to be held at these facilities, which are connected to 50 per cent of the United States’ refining capacity via pipelines.
The futures will be listed, traded and cleared through the CME Group.
The storage space is owned and operated by LOOP LLC, and the auction of these contracts will be done by NEO Markets Inc.
The rapid pace at which oil inventories in the United States are mounting is, no doubt, a key driver fuelling this development.
U.S. inventories rose by 8.2 million barrels during the week ended March 20 and, according to the Energy Information Administration, have reached 446.7 million barrels in total – the highest level year-to-date on record....
Storing oil has become attractive to producers because of the current structure of the futures curve, known as contango. While a barrel of oil sold today goes for less than $49 (U.S.), one sold 12 months from now generates more than $57 in revenue. This disparity allows producers to lock in profits by selling the year-out contract and keeping oil in storage until the time it has to be delivered.
Citigroup estimates that a month of on-land storage costs between 50 cents to 75 cents a barrel, while floating storage on idled tankers ranges from 75 cents to $1.40 a barrel.
(Excerpt) Read more at theglobeandmail.com ...
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