Oil Contango Soars as Oklahoma Brims With Crude: Energy Markets

[FarCenter]

By Grant Smith

April 26 (Bloomberg) -- Oil storage costs are soaring to the highest level in four months as tanks in Oklahoma brim with near-record crude inventories.

Crude for delivery in June cost $1.95 a barrel less than for July on April 21, the biggest gap since Dec. 15 on the New York Mercantile Exchange. The discount, or contango, which mirrors the expense of stockpiling, emerged after inventories jumped 5.8 percent in the week ended April 16 to 34.1 million barrels in Cushing, Oklahoma, where traders make deliveries for futures contracts, government data show.

Inventories are near the record 35.7 million barrels on Jan. 1 because of rising Canadian imports and a seasonal decline in demand as refineries shut for maintenance. Supplies are so plentiful that West Texas Intermediate, or WTI, oil costs less than benchmark Brent crude in Europe, a lower quality crude. Brent cost more than WTI three times in the past year.

“The problem is you cannot get a lot of crude out of the region, it’s landlocked,” said Lawrence Eagles, head of commodities research at JPMorgan Chase & Co. in New York. “It points to being a very local issue.”

Crude oil for June delivery rose 1.7 percent to $85.12 a barrel on April 23, $1.92 less than July. The June contract has traded in a range between $72 and $88 so far this year.

About 16 million barrels of unused storage capacity remains around Cushing, Barclays Capital estimates. Should that fill, producers will need to halt operations because there will be no place to put it. A wider contango, or price gap between oil for delivery now and in later months, means traders can potentially earn more from storing crude, and in turn means tank terminal owners can charge them more for the service.

<SNIP>http://www.bloomberg.com/apps/news?pid=20601087&sid=ayqOVAEyKd_w&pos=7

[DJ13]

1. Knowing the energy speculators thats a signal to push prices higher

:eyes:

[unc70]

2. There was a recent report on growing "in transit" tanker inventories, too

There are lots of ways people try to arbitrage deliveries vs storage of commodities of all sorts. Part of the reason for grain elevators.