Monday, December 8, 2008

Contango Pays Most in Decade as Shell Stores Crude. And: Shell to quit wind projects

Last week we posted "Oil speculation: It's back". Today Bloomberg tells us:

In the worst year ever for oil, investors can lock in the biggest profits in a decade by storing crude.

Traders who bought oil at the $40.81 a barrel on Dec. 5 could sell futures contracts for delivery next December at $54.65, a 34 percent gain. After taking into account storage and financing costs investors would earn about 11 percent, according to Andy Lipow, president of Houston consultant Lipow Oil Associates LLC. The premium, known as contango, is the biggest for a 12-month span of futures since 1998, when a glut drove crude down to $10.

Stockpiling crude may provide higher returns than commodities, stocks and Treasuries as the U.S., Japan and Europe endure simultaneous recessions for the first time since World War II. Crude sank 72 percent in New York since peaking at $147.27 in July. The Standard & Poor’s 500 Index fell 40 percent this year and two-year government notes yield 0.9 percent.

“The bottom line is that you buy crude at a low price and lock in a profit by selling it forward,” said Mike Wittner, head of oil market research at Societe Generale SA in London. “It’s low risk. The contango can definitely pay for storage and the cost of capital and leave plenty left over.”

Royal Dutch Shell Plc sees so much potential in the strategy that it anchored a supertanker holding as much as $80 million of oil off the U.K. to take advantage of higher prices for future delivery. The ship is one of as many as 16 booked for potential storage instead of transporting crude, said Johnny Plumbe, chief executive officer of London shipbroker ACM Shipping Group Plc.

Oil Storage

The tankers, if full, hold about 26 million barrels worth about $1 billion, more than the 22.9 million barrels sitting in Cushing, Oklahoma, where oil is stored for delivery against Nymex contracts. U.S. crude inventories rose 11 percent this year to 320.4 million barrels, according to the Energy Department...MORE

And from the Times of London:

ROYAL DUTCH SHELL has become the second big energy company to abandon the UK wind-energy sector in the last month.

Shell, Danish firm Dong Energy and Scottish Power have cancelled the £800m Cirrus Array project off the northwest coast after five years and millions of pounds in investment.

The consortium blamed Ministry of Defence concerns over radar interference from turbines.

Less than a month ago, Shell denied a Sunday Times report that it had exited the project. However, on Friday the company confirmed that it had no plans for further investment in the UK wind sector....MORE