U.S. crude-oil storage tanks are filling rapidly, with inventories posting their largest gain in nearly 14 years last week. And as The Wall Street Journal reports, the cost to store oil is also rising, as tank space becomes scarce in some regions. Gulf Coast storage is at an all-time high of 219.9 million barrels (about 77% of total capacity), the U.S . Energy Information Administration announced Wednesday.
Perhaps coincidentally, CME Group Inc. announced Wednesday that it’s starting a new futures contract to trade Gulf Coast crude-oil storage via the Louisiana Offshore Oil Port, the largest privately-owned U.S. crude oil terminal. CME owns the New York Mercantile Exchange.
The exchange operator says this is the first-ever oil-storage futures contract. It will work like this: At the beginning of every month, a 30-minute online auction will be held through brokerage NEO Markets Inc. In the auction, LOOP LLC will sell 7,000 contracts. Each contract will give the buyer the right, but not the obligation, to store 1,000 barrels of sour crude oil in LOOP’s Clovelly Hub in Louisiana for a month.
Once the contracts are sold through the auction, they can be bought and sold freely. At the end of the month, anyone holding a contract can use the storage space, which will hold the oil in either an above-ground storage tank or an underground cavern.
The storage can be used for only three types of sour crude. Conveniently, those three types of crude will be tradable using CME’s Gulf Coast sour-crude futures contract, which is being renamed the LOOP Gulf Coast Sour Crude Oil contract. The storage futures contract is expected to begin trading March 29.
So, who will use the oil-storage futures? Producers, transportation companies and refiners all have exposure to commercial storage rates. A storage futures contract could allow those parties to lock in those costs ahead of time or trade them for profit. Foreign companies might be interested too, The Wall Street Journal reports.
