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Why? You pocket $25 RISK FREE per barrel for just holding on to it for 11 months
What is the Catch? U need a place to store a couple of barrels of oil...
What is the CNBC Catchphrase? Contango
What is the math? Buy oil for February physical delivery (perfect, gives you time to organize this brilliant strategy), with the goal to sell it in January 2010, for an 11 month holding. According to most recent NYMEX quotes, you pocket exactly $25/barrel doing this trade.
Some geometry. A Barrel of Oil, is a standard volume measure equivalent to 42 gallons, or 158.9873 liters for our 2 European readers. This "black gold" is stored in 55-gallon drums, which have dimensions of roughly 24" by 34"; while traditionally these have been made of steel, you can buy plastic alternatives. Since you don't care about the quality of the drums you can buy used drums. According to this Craigslist seller you can buy bulk used drums for $8/each. The average circular barrel takes up on average 4 square feet in area and is roughly 3 feet high. You can stack barrels as many as you need high, limited by the height of the storage facility.
Next you want to find an average sized warehouse - presumably somewhere cheap, let's say Stamford, CT, which is terrific for two reasons 1) most of our readers are in the greater Stamford area, and 2) if there is a leak, you will pollute not some endangered crane breeding ground, but the domiciles of some of the richest people in the US. Elsewhere in the country, rates will be cheaper. According to this link, you can rent a 2,200 sq/ foot warehouse in Stamford, CT for $3000 month (this assumes no haggling). Plugging all these variables in the below spreadsheet, and you end up with a risk free profit of $41,800 over 11 months without moving your finger... And this is a scalable and leverageable idea - meaning you can potentially book unlimited profit, as long as you can find the storage, the barrels and someone to finance it if you don't have the upfront costs. Even if inflation has a "hyper" prefix at some point over the next 11 months (which we at Zero Hedge are very concerned about and believe it might happen), you will still be locking in a real profit.
Are we missing something, or is the market so dislocated there are just insane pockets of value... We think the latter... What is your take?