This is awesome. Obviously, you can trade in oil futures, but what happens if you just try to buy a barrel of oil? Tracy Alloway found out.
The point of the exercise was to take part, in some small way, in the severe contango present in the oil market in 2008. Generally speaking, oil purchased for immediate delivery is much less expensive than oil purchased to be delivered at some future date, but in 2008 the differential was huge enough that those with the capacity to move and store large amounts of crude oil could buy, hold, and profit at a meaningful scale.
It took a few years to push the idea to execution, but Alloway did eventually pull it off (though at a smaller scale). The story’s hilarious, but this may be my favorite part:
A true oil storage trade therefore required an early buyer. The usual suspects—think Glencore and Trafigura—wouldn’t dream of touching my puny amount of oil, of course. So I looked farther afield, all the way to my ex-colleagues, who I thought surely still harbored those dreams of owning Black Gold.
Izabella Kaminska, a writer for FT Alphaville and an all-round commodities expert, expressed interest in the contract, then immediately embarked on a due diligence process that would make me rue the whole endeavor.
Unsatisfied with photos of the product, she recruited the services of a professional oil consultant for comfort. The consultant asked for a full inspector’s analysis report and a proof-of-origin certificate. All I had was a FedEx invoice, though I assured them both that I wouldn’t dream of peddling anything but top-shelf sweet crude.
“That [is] all good and well until you learn it’s not Bakken but Kurdish oil, under strict embargo. Well done [for] supporting ISIS,” the consultant replied by e-mail. Adding insult, the consultant informed me that the glass bottle was worth more than the oil inside it, anyway.
When I threatened to sell the oil to a far-friendlier former FT colleague, one without expert knowledge of commodities or the benefit of a sarcastic oil professional, I was accused of taking advantage of less-informed retail investors. Expletives followed.