Super-contango spurs oil volatility

摘要

Steepening contango and expectations for the return of floating storage plays in West Texas Intermediate crude oil markets have spurred a rise in front-month volatilities to unprecedented levels. Spot WTI sat US$9.69 per barrel below one-year forward prices on Thursday, having extended as far as US$11.09 last week - a steepness in the spread of the WTI curve that has been seen in only four other periods since 2008, according to Societe Generale research. Contango is when spot prices sit below forward prices for delivery. The steeper the spread gets, the more profitable floating storage plays become. Floating storage involves purchasing oil at spot prices, storing it at sea, and selling it at forward rates. Profitability of such a play implies that the spread is wide enough to overcome the cost of hiring sometimes expensive crude tankers.