Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The Hottest Sports Stock Of 2020 - 23rd Sep 19
Stocks Wedge At The Edge – Front And Center - 23rd Sep 19
Stock Market Top Almost Confirmed - 23rd Sep 19
Thomas Cook COLLAPSE! 300,000 Passengers Stranded, Flights Cancelled, Planes Grounded - 23rd Sep 19
Massive Stock Market Price Reversion May Be Days or Weeks Away - 22nd Sep 19
How Russia Seized Control of the Uranium Market - 22nd Sep 19
Dow Stock Market Trend Forecast Update - 21st Sep 19
Is Stock Market Price Revaluation Event About To Happen? - 21st Sep 19
Gold Leads, Will the Rest Follow? - 21st Sep 19
Are Cowboys Really Dreaming of... Electric Trucks? - 21st Sep 19
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19

Market Oracle FREE Newsletter

How to Invest in the Esports Revolution

How to Exploit Crude Oil's Current Low Price

Commodities / Crude Oil Mar 04, 2015 - 12:41 PM GMT

By: Money_Morning

Commodities

Peter Krauth writes: If you've been eyeing a new gas-guzzling SUV as your next vehicle, you may want to reconsider that Prius once more. That's because today's low gas prices won't be around forever and oil prices aren't about to "tank" any time soon.

In fact, the oil price crash has created a state of "contango," a market anomaly that savvy investors can exploit. It's presenting a rare market opportunity to profit that only comes around once every few years.


A Market Anomaly That Leads to Big Profits

Let's start with a definition. Contango is trading jargon. It means the current price of a commodity is lower than prices for delivery in the future.

That's where we are in the oil market right now, and it's created a chance to profit.

The last time this happened was during the 2008-2009 "supercontango." Back then, oil tanker ships stored millions of barrels of crude oil off the coasts of major producing or strategic areas like the Gulf of Mexico, England, and Singapore. Spreads between near-month prices and those for delivery 12 months later ran better than $23 a barrel for West Texas Intermediate Crude (WTIC).

It led to a massive 100 million barrels just floating around in seaborne oil tankers for months on end. Big oil players bought the oil cheaply, and sold it on futures markets for much higher prices. Then, they simply stored it and waited for the delivery date to arrive, pocketing some hefty profits.

None of this was even possible until about 25 years ago. In 1990 entrepreneur Lars Jacobsson founded Scandinavian Tank Storage AB, introducing the concept of an oil storage trade.

Fast forward to today's opportunity which, while more modest, is still substantial.

Saudi price cuts, sustained North American shale production, and a worldwide slowdown are pressuring oil prices now.

But markets are forward looking. They know that drilling can't simply be "turned off" at a moment's notice. Doing that is a multi-step process requiring time, technical expertise, and money. So there's a lag between lower prices and lower output.

Right now markets are forecasting WTIC prices will be higher by $10 a barrel (conservative, in my view) a year from now. And a number of players are positioning to lock in those profits.

The most obvious benefactors are the large integrated oil companies like Exxon, Shell, and Total. They have the product and excess storage capacity to simply stockpile and sit on the oil, while selling it in the futures market for later delivery.

By digging into their deep pockets or accessing capital, large commodities traders like Trafigura and Vitol, and even Wall Street bigwigs like Goldman Sachs and Morgan Stanley, are cleaning up with big gains and little risk.

In the last eight months these heavy hitters have bought nearly 30 million barrels to store in supertankers.

Oil futures prices exhibit a distinctly upward sloping curve, confirming the opportunity remains solid. So long as the spread is sufficient to pay for insurance and storage plus an acceptable profit margin, the opportunity is in place.

How to Profit from Contango

Don't be dismayed, it's not just for the big boys.

For retail investors, there's also a way to profit from oil's current state of contango, and that's through the oil services subsector that benefits from oil storage.

World Point Terminals LP (NYSE: WPT) is a limited partnership which owns and operates terminals and storage facilities for light refined products, heavy refined products, and crude oil. It is focused on three key areas in the United States, specifically the East Coast, the Gulf Coast, and the Midwest. More specifically, the company stores gas distillates, jet fuel, fuel oils, liquid asphalt, and crude oil.

WPT boasts 12.8 million barrels of storage capacity over 14 terminals in strategic locations. This allows the company to offer integrated terminals and storage to oil refiners, distributors, marketers, and traders. Thanks to its locations, WPT's assets provide efficient access to transportation infrastructure near demand markets and exports hubs.

With a $670 million market cap, World Point is trading at a reasonable 18.9 current P/E and an attractive 17.2 forward P/E. Profit margins are thick at nearly 39% and return on equity is healthy at 21%. Its quarterly earnings have been growing at a robust clip of 28.3%. All of that has meant a generous yield of 6% from the quarterly dividend.

I wouldn't be surprised to see shares gain 40% to 50% over the next six months as the market comes to realize that production cuts will soon kick in and demand isn't about to fall off a cliff. In fact, I expect demand to get somewhat more robust as retail, commercial, and industrial consumers find ways to use more at these lower prices.

Consider too that some of the biggest demand in this market comes from the official sector. You can be sure that China's stocking up while oil's on sale to add to its currently growing strategic petroleum reserve. Now that you know and understand contango, you can take your own steps to benefit from this rare but lucrative oil price arbitrage opportunity.

Source :http://moneymorning.com/2015/02/24/this-massive-crunch-means-higher-oil-prices/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules