page_title: Price of oil
section_title: Oil-storage trade (contango)
hierarchical_section_title: Price of oil / Oil-storage trade (contango)
caption_attribution_description: English: Derived from File:Bateaux comparaison2 with Allure.svg
context_page_description: The price of oil, or the oil price, generally refers to the spot price of a barrel of benchmark crude oil—a reference price for buyers and sellers of crude oil such as West Texas Intermediate, Brent Crude, Dubai Crude, OPEC Reference Basket, Tapis crude, Bonny Light, Urals oil, Isthmus and Western Canadian Select. There is a differential in the price of a barrel of oil based on its grade—determined by factors such as its specific gravity or API gravity and its sulfur content—and its location—for example, its proximity to tidewater and refineries. Heavier, sour crude oils lacking in tidewater access—such as Western Canadian Select—are less expensive than lighter, sweeter oil—such as WTI.
  According to a January 2020 EIA report, the average price of Brent crude oil in 2019 was $64 per barrel compared to $71 per barrel in 2018. The average price of WTI crude oil was $57 per barrel in 2019 compared to $64 in 2018.
  The price of oil decreased substantially in 2020 due to the COVID-19 pandemic and the 2020 Russia–Saudi Arabia oil price war. On 20 April, WTI Crude futures contracts dropped below $0 for the first time in history, and the following day Brent Crude fell below $20 per barrel.
context_section_description: The oil-storage trade, also referred to as contango, a market strategy in which large, often vertically-integrated oil companies purchase oil for immediate delivery and storage—when the price of oil is low— and hold it in storage until the price of oil increases. Investors bet on the future of oil prices through a financial instrument, oil futures in which they agree on a contract basis, to buy or sell oil at a set date in the future. Crude oil is stored in salt mines, tanks and oil tankers.
  Investors can choose to take profits or losses prior to the oil-delivery date arrives. Or they can leave the contract in place and physical oil is "delivered on the set date" to an "officially designated delivery point", in the United States, that is usually Cushing, Oklahoma. When delivery dates approach, they close out existing contracts and sell new ones for future delivery of the same oil. The oil never moves out of storage. If the forward market is in "contango"—the forward price is higher than the current spot price—the strategy is very successful.
  Scandinavian Tank Storage AB and its founder Lars Jacobsson introduced the concept on the market in early 1990. But it was in 2007 through 2009 the oil storage trade expanded, with many participants—including Wall Street giants, such as Morgan Stanley, Goldman Sachs, and Citicorp—turning sizeable profits simply by sitting on tanks of oil. By May 2007 Cushing's inventory fell by nearly 35% as the oil-storage trade heated up.
  By the end of October 2009 one in twelve of the largest oil tankers was being used more for temporary storage of oil, rather than transportation.
  From June 2014 to January 2015, as the price of oil dropped 60 percent and the supply of oil remained high, the world's largest traders in crude oil purchased at least 25 million barrels to store in supertankers to make a profit in the future when prices rise. Trafigura, Vitol, Gunvor, Koch, Shell and other major energy companies began to book oil storage supertankers for up to 12 months. By 13 January 2015 At least 11 Very Large Crude Carriers (VLCC) and Ultra Large Crude Carriers (ULCC)" have been reported as booked with storage options, rising from around five vessels at the end of last week. Each VLCC can hold 2 million barrels."
  In 2015 as global capacity for oil storage was out-paced by global oil production, and an oil glut occurred. Crude oil storage space became a tradable commodity with CME Group— which owns NYMEX— offering oil-storage futures contracts in March 2015. Traders and producers can buy and sell the right to store certain types of oil.
  By 5 March 2015, as oil production outpaces oil demand by 1.5 million barrels a day, storage capacity globally is dwindling. In the United States alone, according to data from the Energy Information Administration, U.S. crude-oil supplies are at almost 70% of the U. S. storage capacity, the highest to capacity ratio since 1935.
  In 2020, rail and road tankers and decommissioned oil pipe lines are also being used to store crude oil for contango trade. For the WTI crude to be delivered in May 2020, the price had fallen to -$40 per bbl (i.e. buyers would be paid by the sellers for taking delivery of crude oil) due to lack of storage/expensive storage. LNG carriers and LNG tanks can also be used for long duration crude oil storage purpose since LNG can not be stored long term due to evaporation. Frac tanks are also used to store crude oil deviating from their normal use.
caption: The Knock Nevis (1979–2010), a ULCC supertanker compared to the longest ships ever built
exif: {}