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Crude Contango…buy Tankers

FoundingFathers

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#1
https://adventuresincapitalism.com/2020/03/19/crude-contango/

...Last week, I noted that tankers “may be the greatest trade I’ve ever seen in my entire investing career.” Now I’m ready to go on the record and say there won’t be a better one in decades. As the great cities of the world go into lock-down and oil demand collapses, someone has to store it. I recently put more of my money behind this and booked all of my Altisource Portfolio Solutions (ASPS – USA) and Uranium Participation Corp (U – Canada) to add more tankers. I think both ASPS and U have strong upside, but nothing has the sort of upside that tankers have. There are only a few moments in investing where you can bet it big with unusually low risk—this is the best I’ve ever seen and I have to fund it somehow—even if it means taking losses on some of my favorite positions.

I know what the obvious next question is; what if the Saudis stop flooding the market? My response is, “who cares?” We’re all on lock-down. I’m watching out my window. Car traffic is down by half. Cruises aren’t going past my pool deck as frequently and air travel is down dramatically. We’ll eventually beat this flu, but by then, there will be billions of excess barrels to deal with. The Saudis are a rounding error in all of this. Our government is saying this could go on for 18 months or longer. Are you kidding? Where will all the oil go? This is the time to be greedy on tankers.
Funds that I control are long: DHT, EURN, LPG, STNG, TNK
 

Voodoo

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#2
Only good if their cargo is more expensive in X months. What do they do if it's cheaper?
 

Studiopaul

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#3
Did you forget the captains abandoning their ships??!! ports refusing entry? crews not being paid so they abandoned ship to catch flights home... I know people that flew out t remote locations purchased a few cargo and tanker ships..returned them to location for scrap. cut em up for razor blades! I hope your investment doesnt turn to a ghost ship!!

My eyes are on Venezuela and Russia deals!
 

FoundingFathers

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#4
Only good if their cargo is more expensive in X months. What do they do if it's cheaper?
They are shorting the future price of oil which is substantially higher, thereby locking in a profit.
 

Goldhedge

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#7
I heard on the radio they were storing oil off shore in tankers...
 

Goldhedge

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Strawboss

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#12
Tankers are flying today.

No place to go with all the oil except on the water.
Maybe markets arent as "forward looking"as the MSM would like us to believe...
 

Goldhedge

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Voodoo

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#15
Well, I certainly understand the thesis better today than 2 weeks ago. Still don't know what happens when we just have an army of oil floating on the sea. A -$40 / barrel oil wants me to see if I can float some in a pool or two.
 

EO 11110

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#16
'floating storage'. barges are routinely used for same. wonder if the barge companies are getting in on this action too? a decent size barge can hold 20,000+ barrels. and there are A LOT of barges to rent. it's nothing to build tow of 4 barges -- 100kish barrels. that's more than many ships' capacity

two barge names that come to mind are kirby and enterprise products. kirby is the purer play of the two.

kirby (kex) has been crushed alongside the oil market. might be worth digging into - to determine if the ass-kicking is overdone. kirby is the largest barge company in the US
 
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Cigarlover

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#17
'floating storage'. barges are routinely used for same. wonder if the barge companies are getting in on this action too? a decent size barge can hold 20,000+ barrels. and there are A LOT of barges to rent. it's nothing to build tow of 4 barges -- 100kish barrels. that's more than many ships' capacity

two barge names that come to mind are kirby and enterprise products. kirby is the purer play of the two.

kirby (kex) has been crushed alongside the oil market. might be worth digging into - to determine if the ass-kicking is overdone. kirby is the largest barge company in the US
So if they pay you 30 barrel to take it, thats 3 million to take 100k barrels. If you need 5 barges than the only question is can you sell it before the cost to rent the barges eats your 3 million.
Do they pay that 3 million up front? If so why isn't everyone taking the money and renting barges?

I did find one barge for sale for 3.1 million. Holds 55,000 barrels.. I guess if you could buy 2 or more of them and finance for 10 years you can turn a profit if they are paying you 30 a barrel to take it. Not going to happen very often.
 

EO 11110

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#18
So if they pay you 30 barrel to take it, thats 3 million to take 100k barrels. If you need 5 barges than the only question is can you sell it before the cost to rent the barges eats your 3 million.
Do they pay that 3 million up front? If so why isn't everyone taking the money and renting barges?

I did find one barge for sale for 3.1 million. Holds 55,000 barrels.. I guess if you could buy 2 or more of them and finance for 10 years you can turn a profit if they are paying you 30 a barrel to take it. Not going to happen very often.
wish i could remember the number....getting old. but barge rent is dirt cheap compared to ships. a couple of tugs can handle a fleet of barges - fill them up and park them unattended. each tug can get four 25k bbl barges loaded per day

would venture to guess that barge rents are way down. the finished products out of the refineries and chem plants have fallen off of a cliff - leaving plenty of unused barges to store crude oil. the collapse in finished product volumes shows itself in kirby's stock price.
 

Voodoo

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#19
There is no way the EPA will let you store oil in a barge. The cost of a potential accident and oil spill would not be worth the profit. Especially now today that the entire front month contango collapsed. Unless these are specialized barges built for oil but I haven't seen any of those round these parts.
 

Fatrat

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#20
There is no way the EPA will let you store oil in a barge. The cost of a potential accident and oil spill would not be worth the profit. Especially now today that the entire front month contango collapsed. Unless these are specialized barges built for oil but I haven't seen any of those round these parts.
No,but it was a nice dream...