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Why invest into physical commodity assets when vola is down?

Posted: May 5th, 2014, 1:58 am
by observer84
Bloomberg article from May 2. bloomberg shale revolutionThe article talks about commodity merchants acquiring huge amounts of physical assets in the petroleum industry (from storage over transportation to production). This keeps me wondering why they do that at the moment? Are they expecting volatility to rise? For me, storage (and most other physical assets) derives it's value from volatility (or volatility of calender spreads). For instance, volatility has been very low in natural gas in the last couple of years.. Some possible reasons in the article are given: Banks want to leave the physical business and thus, there is an "abundance" of physical assets available to buy at a discount. The article also refers to some "aribtrage" opportunities arising from the record production volumes from shale which I do not understand completely.Would love to hear some ideas / thoughts.Bestobs

Why invest into physical commodity assets when vola is down?

Posted: May 5th, 2014, 4:02 pm
by farmer
Maybe the volatility in calendar spreads is down because the storage providers are making money? Bond yields are pretty low. So people do not need to make a lot of money in storage to justify capacity. What is their competition for capital? Who else is paying any returns?

Why invest into physical commodity assets when vola is down?

Posted: May 5th, 2014, 4:23 pm
by acastaldo
Is there contango or backwardation in oil futures right now?

Why invest into physical commodity assets when vola is down?

Posted: May 5th, 2014, 4:32 pm
by tagoma
QuoteOriginally posted by: observer84 This keeps me wondering why they do not at the moment? Do not what, pls?

Why invest into physical commodity assets when vola is down?

Posted: May 5th, 2014, 5:43 pm
by acastaldo
Why they do not buy spot crude at 99.56, store it until December 2014 and deliver it against a short Dec future at 94.50

Why invest into physical commodity assets when vola is down?

Posted: May 5th, 2014, 5:50 pm
by farmer
QuoteOriginally posted by: acastaldoWhy they do not buy spot crude at 99.56, store it until December 2014 and deliver it against a short Dec future at 94.50Maybe they are trying to get storage built by December?

Why invest into physical commodity assets when vola is down?

Posted: May 5th, 2014, 10:19 pm
by observer84
@tagomaSorry, I meant "This keeps me wondering why they do that at the moment?" (corrected it at my original post now).Oil is in backwardation, gas (henry-hub) actually has several humbs in the term-structure. Although compared to historical calender spreads those seem to be rather low.QuoteMaybe the volatility in calendar spreads is down because the storage providers are making money?Ok, that might be the case. Still, it does not explain why people keep on investing into those assets if volatility is already down. Maybe, as you suggested, the alternatives are too scarce at the moment.Bestobs