Oil traders could make big profits on saudi-Russian glut

Bloomberg/Fuel Fix:

Saudi Arabia and Russia’s price war is handing over a multi-billion dollar profit opportunity to the world’s largest oil traders.

With both Riyadh and Moscow outdoing each other by pumping more oil into an already flooded market, crude prices have flipped. A new price structure, called a contango, allows the traders to make easy money by buying crude cheap, storing it, and selling it forward.

“Full contangos are back in,” said Olivier Jakob, founder of energy consultant Petromatrix GmbH and a former oil trader. “The industry and traders will load up all storage capacities on land or afloat.”

With the contango widening by the day as Saudi Arabia, Russia and the United Arab Emirates announce big production hikes, oil traders are rushing to profit. Vitol Group, the world’s largest independent oil trading house, has already booked tanks in South Korea to store crude, for example. And others are also booking tankers to turn them into floating storage facilities, according to executives, traders, brokers and analysts.

The so-called prompt contango, measured by the difference between Brent crude for delivery in one and two months, widened on Wednesday above $1 a barrel to a four-year peak -- an indication of mounting oversupply.

“Everyone is looking for tanks,” an executive at a major oil trading company said, asking not to be named discussing commercial matters.

Oil traders said a significant chunk of the extra supply that Saudi Arabia has pledged for April will end up going directly into storage tanks for contango plays, rather than being refined. Two customers of Aramco that received extra crude allocations for next month from state-owned Saudi Aramco told Bloomberg News they intended to store the crude.
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The volatility in the stock market is probably also producing trading opportunities especially in the options market.  People who bought straddles, i.e. puts and calls on the near term market probably did pretty well on the ups and downs of the stock market.  The wild fluctuations from day to day resemble the Chinese ideogram of the word "crisis."  The two characters that make up the work mean "trouble" and "opportunity."