July 8th, 2007, 8:01 pm
not sure if this helps but there is an interesting situation currently in the front few months in Brent and WTI (or at least it was true a few weeks ago).when a commodity curve goes up faster than interest rates (supercontango) it means that if you could buy it and store it for free you could lock in a (near) riskless arbitrage.you borrow money at LIBOR (secured on the oil purchase plus hedge) buy the oil at the spot price and store it, and then sell it forward via the futures market.so the cost of oil storage is the key. the fact that big hegde funds were getting into physical oil storage in 2006 should tell you something!