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119 comments on DrumBeat: December 20, 2008

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ICouldBeWrong on December 20, 2008 - 11:01am Permalink | Subthread | Comments top

"If you could find storage for it, it's a way to get rich real quickly,"

What's the deal here? If I live close to a delivery point (Cushing, OK?). Then can I buy a Jan contract for $33.87 and at the same time sell a Feb Contract for $42.78. Store the crude for a month, then deliver it and make a $8.91 profit per barrel, 26% in a month!?

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Moe_Gamble on December 20, 2008 - 5:06pm Permalink | Subthread | Parent | Comments top

Right. Take delivery. Store the oil. Deliver the oil you stored. Pay the storage people and the interest on any money you may have borrowed to finance the whole thing. The rest is your profits.

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totoneila on December 20, 2008 - 5:23pm Permalink | Subthread | Parent | Comments top

If I had the money and brains: I would rather hoard sulfur to profit wildly the next time its price increases Twentyfold or more in less than a year [see USGS website for details].

Recall that potash in 1914 sold for an inflation-adjusted $15,000/ton. A dire phosphate shortage due to wildly insufficient sulfur and energy for the beneficiation process plus other critical industrial usage--the sky is the limit. My feeble two cents.

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Moe_Gamble on December 20, 2008 - 5:27pm Permalink | Subthread | Parent | Comments top

The difference is that the oil profit is guaranteed and easy to lock in, assuming you've got the money and can arrange for the storage.

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ICouldBeWrong on December 21, 2008 - 2:32am Permalink | Subthread | Parent | Comments top

I guess the Jan contract closed on Friday, so too late this time. But for future reference I wonder what the practical considerations are for arranging storage and delivery. For instance for a gold contract I believe if you take delivery of bullion it has to be re-assayed before it is allowed back into the system.

Maybe someone has already gone through this process and can relate their experience of it. At current prices taking delivery of a full contract (1,000 barrels = $33,870) is not prohibitively expensive so long as the storage and transport costs are reasonable. How much does it cost to hire a small oil tanker for a month? Dry shipping rates have dropped through the floor but I don't know about liquid shipping rates.

http://www.nymex.com/CL_spec.aspx:
"Delivery
F.O.B. seller's facility, Cushing, Oklahoma, at any pipeline or storage facility with pipeline access to TEPPCO, Cushing storage, or Equilon Pipeline Co., by in-tank transfer, in-line transfer, book-out, or inter-facility transfer (pumpover).

Complete delivery rules and provisions are detailed in Chapter 200 of the Exchange Rulebook."
-> http://www.nymex.com/rule_main.aspx?pg=63

Oil stocks are at the top of the 5 year range, so it's a no brainer that storage facilities are full:
http://tonto.eia.doe.gov/oog/info/twip/twip.asp

It's the guaranteed profit that is attractive to me, but I guess I would be exposed to margin call risk by shorting the Feb contract. So there's a catch there too.

Moe have you heard of Robert Prechter ? What do you think of his predictions (Grand Super Cycle)?

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119 comments on DrumBeat: December 20, 2008

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