Futures show Contango

Saturday, October 10, 2009

A market condition called contango, in which oil futures contracts going forward are higher than ones for the immediate future, has traders scrambling for crude storage as they attempt to lock in future profits.

Phil Flynn, vice president at Chicago-based trading firm Alaron, said the oil contango has created a frenzy for storage space.

“You pay as much as $2 a barrel to store it but you can lock in the profit instantly today and make out like a bandit,” he said.

The scramble for oil storage, combined with reduced demand in the recession, has lifted U.S. inventory numbers to 321 million stockpiled barrels, an 8 percent increase over this time last year, according to the latest report from the Energy Information Administration.

Oil ETF like USO, OIL and DBO are much more expensive to carry with the oil market showing this kind of Contango.

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