Storage has become a tradable commodity on the market with the launch of the first ever physically delivered crude oil storage futures contract.
The CME group – the world’s leading derivatives marketplace – along with terminal operator Loop and online oil marketplace NEO Markets, have announced they have reached a definitive agreement to develop the contract.
The new LOOP crude oil storage futures contract will begin trading on March 29.
The innovative contract will provide market participants with an exchange-traded futures contract based on crude oil storage capacity at Loop’s Clovelly Hub in Louisiana, US, beginning with the May 2015 contract month.
Each contract will represent the right to store 1,000 barrels of crude oil at the storage hub for a specific calendar month.
This development highlights the growing interest in storage as the contango market continues and traders seek to maximise their inventory profits by turning to various storage options. Storage in Europe is almost full and capacities in the US are rapidly rising.
As part of the agreement between the three parties, CME Group will broaden the specifications of this sour crude futures contract to include Poseidon, Mars and LOOP Seg 17.
NEO Markets will host monthly auctions of physical Loop sour crude oil storage contracts. Following the auctions, over-the-counter transactions can be negotiated through other NEO trader platforms.
MD for CME Group, Martin Fraenkel says: ‘We believe this innovative new solution will help customers manage their physical crude storage price risk, which enhancing price discovery and access to short-term storage capacity along the US Gulf Coast.’
‘We are pleased to be providing the physical storage capability for this ground-breaking new storage futures contact,’ says Tom Shaw, president of Loop.
‘LOOP’s reliability record, unparalleled market connectivity, extensive supply of medium sour crude and significant storage capacity provide the market a unique storage opportunity on the Gulf Coast.’
J. Robert Collins Jr, Co-CEO and president of NEO Markets, says: ‘By offering storage rights to a broader market through these new futures contacts, we expect to provide greater transparency, ease of access, liquidity, flexibility and security of supply for companies dependent on Gulf Coast oil deliverability.’