Tuesday, 8 September 2020

Oil Glut Trade on the Brink of Making Comeback in Blow for OPEC+ - Bloomberg

Oil Glut Trade on the Brink of Making Comeback in Blow for OPEC+ - Bloomberg:

An oil trade that only works when the market is glutted may be about to make a comeback. That’s bad news for producers withholding near-record amounts of crude in a coordinated bid to help prop up prices.

The global Brent crude benchmark is currently trading quite deeply in a bearish pattern known contango, where the most immediate prices are far below those for contracts for supply in later months. The discount has gotten so big that it appears to cover the nominal cost of hiring 1,200-feet long supertankers. In other words: traders can buy cargoes now, stash them on ships, and sell them later at a profit.



Such a development would be viewed with concern by the likes of Saudi Arabia and Russia, the two nations who led the deepest global oil production cuts in history. In recent months, they have been carefully trying to boost supply to bring it slowly back toward normal. The contango implies that the market is so oversupplied that one of the industry’s most expensive forms of storage is becoming a viable way to hoard barrels -- on paper at least.

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