Making Profits Buying and Storing Oil

Crude oil prices closed higher by 1.5 percent on Tuesday as data showing China’s January crude oil throughput climbed 0.6 percent on year to 39.35 million tonnes, or 9.27 million barrels per day, supported the oil market. However, markets remain depressed by a stronger dollar and a rise in Libyan crude output. Brent oil gained $1.50 to trade at $61.05 and gave back those gains in the Asian session diverging from WTI which gained to 50.61.

Oil rebounded yesterday as Israeli Prime Minister Benjamin Netanyahu warned the Obama administration against accepting a weak nuclear deal with Iran, and rival Libyan forces targeted oil terminals in the African nation.

Higher prices imposed by Saudi Arabia for its crude buyers in Asia, the U.S. and northwest Europe were another positive development, traders said, although some had expected benchmark Brent and U.S. oil futures to rally even more on that.

U.S. crude futures were volatile on concerns that oil inventories in the United States had hit new record highs. Oil got a strong start after rival Libyan forces carried out tit-for-tat air strikes on oil terminals and an airport, reviving fears over local crude supplies.

Gains accelerated just before noon in New York when Netanyahu told the U.S. Congress that the nuclear deal being negotiated by Washington and Tehran would almost guarantee nuclear weapons for OPEC member Iran. As OPEC countries turn on the oil taps so did US producers, regardless of rig count declines production is soaring to new highs. The U.S. has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months.

For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country’s main trading hub in Cushing, Oklahoma, pushing U.S. supplies to their highest point in at least 80 years, the Energy Department reported last week.

Oil could fall all the way to $20 a barrel from the current $50. At that rock-bottom price, oil companies, faced with mounting losses, would stop pumping oil until the glut eased. Gasoline prices would fall along with crude, though lower refinery production, because of seasonal factors and unexpected outages, could prevent a sharp decline. The national average price of gasoline is $2.44 a gallon. That’s $1.02 cheaper than last year at this time, but up 37 cents over the past month.

Oil investors are making money buying and storing oil because of the difference between the current price of oil and the price for delivery in far-off months. An investor can buy oil at $50 today and enter into a contract to sell it for $59 in December, locking in a profit even after paying for storage during those months. The contracted delivery point for oil traded in the U.S. is Cushing, Oklahoma The city is covered with tanks that in theory, hold 85 million barrels of oil, according to the Energy Department, though some of those tanks are used for blending or feeding pipelines, not for storing oil.