Hacker News Reader

Comment by matthewdgreen | Hacker News Reader

If you happen to own a unique storage facility for a (somewhat) volatile asset, exploiting it to produce income for the country seems like a smart idea. I also see no issue using the same profits to pay for the maintenance of the storage facility itself. What is the problem, exactly?

View on HN

If you think buying low and selling high is simple, then you can just buy futures contracts.

All the professional futures traders were of course trying to do exactly this, with the result that all of the storage capacity that was available on the open market was full. What made this a good opportunity for the US government was that they had a whole bunch of storage space free in the strategic reserve to execute this strategy, and making use of it would both make them money and reduce the disruption to the economy from the sudden surge in oil demand once everything opened up again. It was both entirely predictable and predicted that oil and fuel prices would shoot up again once that happened, there just wasn't any way for most people to take advantage of it due to the difficulty of storing oil.

Futures contracts alone can't do this. A futures contract for March 2023 delivery will always be delivered in March 2023, no matter how many times you buy and sell.

Instead you need to buy a contract for Dec 2021, store the oil, and sell another contract today for delivery in 2023 for a higher price. This is exactly what people with storage facilities do, and is why people who buy CRUD ETF's don't make all the money, even if they make the right call about which direction the oil price will go.

Or you can do the real deal.

Aren't futures dependent on storage capacity anyway?

Like at some point at scale, it's got to be better to do the physical rather than contract equivalent.

Reply on news.ycombinator.com