Oil-storage trade

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The oil-storage trade is a trading strategy where oil tank owners and companies that lease storage buy oil for immediate delivery and stick it in their storage tanks, then sell contracts for future delivery at a higher price. When delivery dates approach, they close out existing contracts and sell new ones for future delivery of the same oil. The oil never moves out of storage. Trading in this fashion is only successful if the market is exhibiting contango, that is forward prices are higher than spot prices. Storing oil became big business recently, with many participants - including Wall Street giants such as Morgan Stanley - turning sizeable profits simply by sitting on tanks of oil.^[1]