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Morgan Stanley Continues To Speculate

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They are not speculating. They are buying physical oil, and simultaneously selling futures against it so the oil is hedged. By storing the oil on the tanker they collect the diffference between the spot oil price and the futures price minus the cost of finance, insurance and hiring the ship. Standard risk free arbitrage.

Not many people know this but Citigroup (Philip Bothers commodity trading arm) used to own oil refineries. Deutsche bank also owns a gold processing facility in Germany - produces small retail sized bars for sale via Deutsche bank branches.

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They are not speculating. They are buying physical oil, and simultaneously selling futures against it so the oil is hedged. By storing the oil on the tanker they collect the diffference between the spot oil price and the futures price minus the cost of finance, insurance and hiring the ship. Standard risk free arbitrage.

Not many people know this but Citigroup (Philip Bothers commodity trading arm) used to own oil refineries. Deutsche bank also owns a gold processing facility in Germany - produces small retail sized bars for sale via Deutsche bank branches.

At $24m a year to store 2m barrels priced at $33/barrel, the futures price would have to be a lot higher than the current spot for this to work; is it?

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At $24m a year to store 2m barrels priced at $33/barrel, the futures price would have to be a lot higher than the current spot for this to work; is it?

Here s your answer. Its at the bottom of the article.

Morgan Stanley hired its tanker at $68,000 a day, the two brokers said. That works out at $1.02 a barrel a month, based on a 2 million-barrel cargo. Benchmark U.S. oil futures are trading at an average of $3.65 more than the previous month between February and June.

Add to the cost of monthly storage about 1% of the purchase price of the crude (i.e $0.50) per month to cover interest, insurance and evaporation and that still leaves a tidy risk free profit plus a free option on a huge amount more profit if the oil market flips into a backwardation.

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Here s your answer. Its at the bottom of the article.

Morgan Stanley hired its tanker at $68,000 a day, the two brokers said. That works out at $1.02 a barrel a month, based on a 2 million-barrel cargo. Benchmark U.S. oil futures are trading at an average of $3.65 more than the previous month between February and June.

Add to the cost of monthly storage about 1% of the purchase price of the crude (i.e $0.50) per month to cover interest, insurance and evaporation and that still leaves a tidy risk free profit plus a free option on a huge amount more profit if the oil market flips into a backwardation.

Thanks for that - read it quickly and didnt make the link between those 2 per barrel numbers. And your point on backwardation is a good one, and if they get the price up, a distinct possibility given OPEC's record on production discipline. All in all a good trade, by the sounds of it.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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