“Where Hunter S. Thompson had motorcycle gangs and Halcion, we must content ourselves with mineral rights and hydrocarbons.”

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.

(Via MeFi.)

One thought on ““Where Hunter S. Thompson had motorcycle gangs and Halcion, we must content ourselves with mineral rights and hydrocarbons.”

  1. Commodities traders are jackyls and generally jackasses. Something about trading other peoples money gives them some sort of idea that they are the chosen? I am glad that my daily contact with traders has been replaced with cows.

    When all of the children finally left the house we grew up in (ie. me) my parents immediately put the house on the market. This was before fannie and freddie mac free money, so the parentals were having a time selling the giant ranch. A couple who owned a gas station wanted to buy the place and wanted to pay cash. My parents actually took 250 Barrels of gasoline as colateral on the transaction and sold it back to them when they produced the green. I remember my Dad joking that he would use the swimming pool as storage if the deal fell through. A few years later the couple got popped for having a big grow operation in the big attic. It seems my neighbors turned them in. Ironically the mister neighbor had just been sprung for fencing heavy equipment. But they were good christian folk who did not like the hippy ways.