Crude oil contango arbitrage and the floating storage decision

Frederik Regli and Roar Adland

Transportation Research Part E: Logistics and Transportation Review, 2019, vol. 122, issue C, 100-118

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.

Keywords: Contango; Crude oil; Floating storage; Forward freight agreements; Freight rates; Time charter rates (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.tre.2018.11.007

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