With crude oil piling up around the world the space inside terminals is now a hot commodity. The market for crude oil storage futures has been expanding since last year’s launch. Instead of giving buyers oil, the futures contracts confer the right to store it — in caverns on the Gulf of Mexico coast. Open interest, or the number of contracts outstanding, has increased to the equivalent of 23.5m barrels of capacity, more than doubling since the beginning of the year. Oil companies, refiners and banks have been trading the contracts, said Bo Collins, co-founder of Matrix Markets, which helped develop them. “The only crowd that’s sort of missing from the mix is the HFT [high-frequency trading] crowd,” he said.
The contracts were introduced as a supply glut caused oil stocks around the world to swell, driving up demand for tanks. Buyers get the right to store high-sulphur “sour” crude at the Louisiana Offshore Oil Port (Loop), which contains one of the biggest terminals in North America. In the Gulf coast region that includes Loop, crude stocks have risen to records of more than 280m barrels, up 18 per cent from the beginning of the year. Nationwide, oil stocks rose by 1.3m barrels last week to 541.3m, just shy of a 1929 record, the energy department reported Wednesday. The market for oil tank leases is mostly opaque, with terms closely held by counterparties. The advantage of the storage futures contracts is that they allow “you to freely trade something that previously was not freely traded. The value may have been known, but it wasn’t transparent,” said Peter Keavey of CME Group, the Chicago-based exchange operator that lists them. Market activity is centred on auctions held on the first Tuesday of each month. This month the auction sold 6.2m barrels of capacity at Loop.