As traders sit on oil stores in an attempt to wait out the low energy prices, shipping exchange traded are setting sail on increased at-sea storage demand.
The Guggenheim Global Shipping ETF (NYSEArca: SEA) is up 1.5% year-to-date after declining 11.4% over the past year.
After oil prices plunged last year, U.S. producers and traders are stashing away oil in storage tanks, fueling a wider spread in contango.
Contango occurs when the price on a futures contract is higher than the expected future spot price, which creates the upward sloping curve on future commodity prices over time. Essentially, the phenomenon reflects a current spot price that is lower than the futures price.
For instance, WTI futures were trading around $53.1 per barrel Tuesday for the March 2015 delivery, but contracts with a later delivery are trading higher, with contracts for March 2016 delivery at $62.1 per barrel. Fundamental factors, including storage costs and other financing costs, help contribute to the higher costs over time. [Widening Contango Could Cut Into Popular Oil ETF’s Returns]
With crude oil inventories skyrocketing and storage facilities at storage tanks in places like Cushing, Oklahoma filling up, more traders will turn to offshore, at-sea supertankers to hold oil.
“Should crude oil prices remain under pressure, the existing contango along the crude oil curve could widen and thereby increase oil stockpiling and the potential use of tankers for floating storage,” according to Tankships Investment Holdings Inc, a unit of DryShips, Reuters reports.