In accordance with a jump in freight rates, even though Brent futures extended to the widest level of contango in the first six months, profit of the traders storing crude oil for sale will increase towards the end of the year.
Traders say that a sharp recovery in spot crude oil differences may increase traders’ profits, but the widening drop in global demand extends the time it takes for markets to melt down swollen stocks and trigger price recovery.
Unlike previous contango games, the current crisis combines excess supply with a collapse in demand. In reality, the situation is where low oil prices push large oil producers to tighten their supply and raise prices to profitable levels for traders.
The decline in spot oil prices tied the six-month contango spread. Currently, Brent crude futures between May and November it’s $ 13.95 per barrel which is the largest level ever and causes traders to store oil at higher prices for future sales.
The drop in spot oil prices has led Brent crude futures to be at $ 13.95 per barrel, due to the six-month contango spread that is currently taking place between May and November, and traders are storing oil at higher prices for future sales.
Eventually, VLCC rents are at satisfactory levels, they have been booked by large trading companies at $ 40,000 to $ 80,000 a day to store crude for 6-8 months. This strong demand increased freight rates, however, it reduced traders’ profits due to the the wider contango.
Traders say that six-month rental rates for VLCCs jumped to about $ 120,000 a day, or $ 10.80 per barrel, Brent from June to December spread from this price to $ 11.28 and barely covered storage costs.
By the way, companies that have longer storage capabilities will have a better chance of making big profits.
Ultimately, only companies having strong financial power such as oil majors and global traders will be able to withstand this for longer than expected.