BP To Reduce Oil in Storage as Contango Narrows

Oil major BP said it will gradually sell throughout 2015 more than $1.25 billion of oil it had stored earlier this year to seize on a futures market structure to boost profit.

Traders including BP bought and stored oil throughout late 2014 and early 2015 after an oil price collapse as prompt prices dropped below those for further into the future, a market structure known as contango.

Traders have been profiting from the contango by storing crude in the hope of reselling it at a profit at a later date or by simply locking gains via paper trading.

Chief Financial Officer Brian Gilvary said BP’s trading unit had performed much better than in an average quarter, likening the quarter to a strong trading performance in early 2009 when crude prices last crashed.

“The profit we booked in one quarter for contango is relatively modest, in the tens of millions, certainly not the hundreds,” BP’s Chief Financial Officer Brian Gilvary said on a conference call.

BP bought and stored more than $1.25 billion worth of oil, the equivalent of around 23 million barrels, during the first three months of the year, the company said.

BP said it will gradually unwind the stocks as the market structure narrowed.

“We expect the working capital inventory build to unwind over the rest of the year,” a company spokesman said.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza