Thoughts on WTI storage and contango plays gone wrong
Back in 2020, during the height of the storage crunch for WTI, I got a bit too clever trying to play the contango. The idea was simple enough: roll futures contracts to profit from the spread between near and far months, banking on the physical storage problem getting worse before it got better. I was watching the news, seeing tankers full of crude just sitting there, land-locked storage filling up. It felt like a low-risk arbitrage. My mistake? I didn't fully appreciate just how negative futures prices could go, or the sheer logistical nightmare of actual delivery. When contracts started printing negative, even for a short while, it was a wake-up call that the 'obvious' play can have tails you never imagined. I didn't get caught at -$40, thankfully, but the losses from closing out positions that were supposed to be 'safe' contango rolls taught me a harsh lesson about understanding every single leg of a commodity trade, not just the front-month price action. Always have to consider the physical reality, even if you're only trading paper. What seemed like easy money evaporated fast.
It's easy to get caught up in those types of plays when the narrative is so strong. The risk of the contango breaking down, or storage being less constrained than anticipated, always looms large. Did you manage to exit without taking a massive hit?