Have you read Poten’s last one:
source: Poten Weekly Tanker Opinions, Commodity Consulting & Analytics department at Poten & Partners.
My short comment:
Facts and fantasies about the Contango
The medias and finance books make people to believe that traders need the “full carrying charge market”* to break-even or initiate a storage play with a contango. Short answer is no.
The simplest way to explain it is that the spot commodity investment isn’t the only source of risks/returns in a long-the-carry (storage play) trade.
While, some carry will help, two other factors will also determine the outcome of a long-the-carry trade: the roll yield and collateral yield*.
The 2008 Contango
In 08′, “Skew to the right” skyrocketed while volatility and correlation spiked. The Lehman bankruptcy inflicted a contagion in the oil and freight market.
Brent collapsed to $50/bbl, VLCCs AG-EAST TCE dropped 90%.
BET was categorically on the Rise: Billions of dollars were poured by Funds into commodity structured products. The Buy-side (Refiners) had a great market aversion for Brent to go up.
VLCCs did a +85% V-shape move once participants noticed the Contango that had appeared in oil.
In my opinion, current strip is rather Flat and many items for the contango are still missing.
The Trade Shipping and Finance Wizard © 2014
Navigating the commodities markets with Freight and Spreads
*The full carrying charge: this is a situation in the forward market when the price differential between delivery months reflects the full costs of interest, insurance and storage. It is not the only source of risk/return in a long-the-carry(storage play) trade.
The roll yield or rolling is the action to extend the expiration or maturity of an option or futures contract by closing the initial shorter-term contract and opening a new longer-term contract for the same underlying asset. It is the biggest source of risk/return in a long-the-carry(storage play) trade.
The collateral yield is the return on the collateral put for the futures margins. Generally, this a T-Bill return with a maturity matching the long-the-carry position.