Contango Storage Arbitrage

One of the real bright spots in the shipping markets in recent weeks has been the so-called “Contango Storage Arbitrage Trade”. For those unfamiliar with the parlance, the term Contango refers to the condition in the futures market when a commodity has a higher value at a future date than it does presently. Backwardation is the opposite market condition. In an environment of Contango, if the difference between the current price and the future price is greater than the cost of storing and delivering the commodity, then there is the potential for arbitrage.

In the recent weeks, such an arbitrage opportunity has been available and savvy traders from Koch to Phibro to Morgan Stanley have taken advantage of the opportunity by loading 30-35 VLCCs and 10 Suezmax tanker full

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