f1mpladed's picture
Rank: Baboon | 121

I keep reading about places where commodities are stored...
i read a while bac that the highest useage of shipping containers at one point was from banks who would hold oil in them off the coast. I just read about copper being stored in some place...

now i thought that by storage they meant just at a future time they would have access to whatever it is.. oil cooper etc. at the previous price (futures contract)

Comments (6)

Feb 21, 2011

Whats the question>?

If I had asked people what they wanted, they would have said faster horses - Henry Ford

Feb 21, 2011

lol which is it? both? are there actual physical sites where they store commodities (not including reserves)

Feb 21, 2011

ofcourse there is physical storage. how else do you buy something today to sell it tommorow to take advantage of contango?

Feb 22, 2011

the same way stocks are traded? a paper saying u have X amount at X price?

Feb 22, 2011

Commodities futures settle to the physical item, that's how things like contango/backwardation can possibly exist, or else you could just put on the spread between two expiration months and make infinite money.

If you're bored, you can try calling up a tanker company and asking how much it would cost to store X barrels of oil for a month. I'll bet you'll find it is exactly the amount of money that it looks like you could make by buying front month futures and selling 2nd month futures.

As for the banks having their own storage facilities/tankers, it wouldn't surprise me if they rented them from time to time. A friend at D. E. Shaw told me he heard that Shaw had rented an oil tanker for a few months to pull off an arbitrage a few years before he started. Can't verify the story, but it seems perfectly reasonable that commodities desks at banks/hedge funds would sometimes (rarely, mind you) choose to take/make delivery rather than close out their contracts.

Feb 23, 2011