“Don’t buy a barrel of oil, it’ll kill you,” a gas broker told Bloomberg Business reporter Tracy Alloway over wine in downtown New York.
It was a portentous moment in Alloway’s long-held plan of trying to buy a single barrel of actual crude oil, which she recounts in her article titled “That Time I Tried to Buy an Actual Barrel of Crude Oil.” Rather than receiving a new contact, she received a “disappointingly stern lecture on the danger of hydrogen sulfides.” Her quest would prove to be fruitful, though, just not in the way she had originally imagined.
When it comes to commodities, oil may be king, Alloway writes. However, for a retail investor the raw product is almost impossible to come by. While some people can buy and trade gold and silver quite easily, crude oil is an entirely different story. “If gold is the equivalent of a pet rock, then I can confidently say that oil is the equivalent of playing host to a herd of feral cats; it demands constant vigilance and maintenance,” Alloway said.
It takes crude to contango
Her plan to buy a barrel of oil began in 2008 on the tails of the financial crisis and as the oil market was entering into a severe contango, or when oil priced for future delivery is exceptionally higher than the price of immediate “spot” delivery. If one had the capacity to buy, move and store crude to sell at a later date, a healthy profit could be fetched. Alloway wanted to see if she could do the same and soon developed a plan with former colleagues to source and store a barrel of crude “all in the name of journalistic experimentation.”
But alas, the plan didn’t pan out, and the oil market downturn quickly made the hopes of a nice profit fade away. Although the disparity between spot and futures prices decreased, Alloway’s plan was revived in a chance meeting with a gas trader and his broker in which she received that grave warning after explaining her reasoning. But with a little help from the wine, she found herself arranging a trip to the tidal strait of Arthur Kill, where crude oil is stored, blended and refined in preparation for becoming nylon stockings or synthetic leather.
Speaking with a petrochemical engineer, Alloway asked if crude oil could indeed kill her, which prompted another stern lecture about the dangers of hydrogen sulfide gas, or H2S. And so she conceded to the fact that maybe buying and storing a whole barrel of crude wasn’t the best idea. After all, her small New York apartment was lacking the ventilation and insurance policy needed to do it safely, and the Bloomberg offices were probably out of the question.
What doesn’t kill you makes you stronger
So if not a barrel, what about a bottle? Alloway suspected that after being subjected to her “persistent, doubtlessly annoying questions,” the broker had given up. Not long after “inanely” suggesting to the broker that a small amount would make her stronger, the broker phoned an oil inspection company. Two liters of Bakken crude would soon be making its way via rail to the Philadelphia refining complex, and then to Manhattan in the care of FedEx.
Alloway writes, “I have named it Williston – a reference to the petroleum-rich basin that dominates the Northern Great Plains and an homage to the loss of my own sanity as I pursued this harebrained scheme. Willllliston! Willlllistooon! I shall cry, à la Tom Hanks in Cast Away, when I finally part with the thing.” And she did indeed eventually part with her beloved bottle of Bakken crude, even though the glass bottle was worth more than the hydrocarbons it contained.
She was able to sell the bottle on a futures contract for a tiny profit, though, when factoring in productivity lost in the lengthy process, she admitted she was probably in the red. Nonetheless, the bottle was worth roughly $0.24 on the spot market, and with its sale in March, she would net a whopping $0.07 profit.
Despite the deal not going how she had originally imagined, she counts her journalistic experiment a success, but not without taking a few jabs from her colleagues first. Some fellow journalists said she should think about starting an artisanal oil refining company. Traders on the other hand, jokingly lamented about how the experiment was an indication that oil prices still have a ways to go before hitting bottom.
To read the full report by Tracy Alloway and her experience with the crude futures market, click here.