Recently, crude oil prices have been in a widening contango. This presents a tremendous opportunity for physical traders to profit if the correct supply chain decisions are made and executed.
However, there is a need and advantage to using sophisticated energy and commodity trading and risk management software (ETRM and CTRM) to run scenarios and determine the optimal storage, shipping, and timing.
con·tan·go
(noun)
a situation where the futures price of a commodity
is above the expected future spot price
So, what is contango? When the current price of a commodity, such as oil, is lower than prices for delivery in a few months’ time, the market structure in industry jargon is known as contango. This means it is attractive for traders to buy oil now at cheaper rates, store it, either at land or at sea, and sell it in the future at higher prices which will result in big profits. Traders lock in the profits by buying physical oil and selling forward on the futures market. (Source: The Financial Times Ltd.)
The Complex Supply Chain Dance That Drives the Need for ETRM and CTRM Software
The last time I checked, the 12-month WTI contango was over $9. Oil traders are well served buying and storing crude to sell in the future at a higher price. But should they store on land, at sea, what location is best, how long should they hold it, and many, many other questions need to be considered. And this brings us back to the need for advanced ETRM and CTRM software (ahh, it always comes back to software) with the analytics capability to optimize these decisions.
Summary
It’s a really interesting time in the commodities markets and exciting to be a participant, even if it’s from the software side. Crude in contango is just another one of the interesting aspects.
Eka’s InSight CM platform for energy products is a fully integrated, multi-commodity, next-generation energy trading and risk management (ETRM) software platform for crude and refined products, natural gas, natural gas liquids (NGL), liquefied natural gas (LNG), power, coal, and biofuels covering all aspects of a transaction lifecycle including trading, risk management, processing, scheduling, logistics, and accounting. Eka’s InSight CM platform provides greater control over trading, risk management, and the supply chain of energy businesses than first-generation ETRM software platforms. Eka’s advanced analysis and reporting module gives energy companies a competitive advantage.
