Crude oil contango arbitrage and the floating storage decision

Crude oil contango arbitrage and the floating storage decision

Crude oil

Contango

Floating storage

Forward freight agreements

Time charter rates

We investigate charterers’ ability and willingness to exploit floating storage arbitrage opportunities. Using time-series and fixtures data on time-charter rates, we find that arbitrage opportunities were present during the Financial Crisis and the recent Oil Glut. An investigation of storage profits across storage horizons suggests that positive oil supply shocks favour longer storage horizons than negative oil demand shocks. Evidence from spatial ship-tracking data suggests charterers are reluctant to exploit the arbitrage opportunity when the implied value of transportation from Forward Freight Agreements (FFAs) exceeds the storage profit. Our findings are of interest to maritime economists and oil market participants.

Transportation Research Part E: Logistics and Transportation Review

2019-02-01

Regli, Frederik

Adland, Roar

Journal Article

7KWB6G7J

1366-5545

10.1016/j.tre.2018.11.007