Crude Oil Contango Arbitrage and the Floating Storage Decision

Frederik Regli, Roar Adland

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

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.
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.
LanguageEnglish
JournalTransportation Research. Part E: Logistics and Transportation Review
Volume122
Pages100-118
Number of pages19
ISSN1366-5545
DOIs
StatePublished - Feb 2019

Bibliographical note

Published online: 7 December 2018.

Keywords

  • Contango
  • Crude oil
  • Floating storage
  • Forward freight agreements
  • Freight rates
  • Time charter rates

Cite this

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Crude Oil Contango Arbitrage and the Floating Storage Decision. / Regli, Frederik; Adland, Roar.

In: Transportation Research. Part E: Logistics and Transportation Review, Vol. 122, 02.2019, p. 100-118.

Research output: Contribution to journalJournal articleResearchpeer-review

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