[whyhow]

In response to the article about USO:

If you wanted to build a financial entity to track oil prices, couldn't you just form a company that just buys a warehouse and stores a large amount of oil? Then its value would be roughly equivalent to the amount of oil it has stored?

Then I guess at the end of the month, the company would buy or sell more oil to align its value. Maybe operate like an etf that tracks an index?

[zacherates]

That strategy is discussed in footnote #2. Though one of the interesting things about such a physical oil fund is it makes it clear that you're just frittering away investor money on storage costs (discussed in footnote #4), which are more abstract/less obvious when you're spending the money trading futures rather than on a big bin to hold the oil.

[mrfredward]

And so the difference between May and June futures should be constrained by the cost of storing oil for a month (the price of oil for June should be <= may + 1 month storage). Of course, storage facilities take time and money to build and shutdown, so there ends up being supply and demand based fluctuations for the cost of storing oil, and so if we run out of storage space (as happened at the end of April), you can get a huge difference in prices for futures that are a short time apart (which also happened at the end of April).

[warbaker]

Storing oil safely is hard: https://www.bloomberg.com/news/articles/2015-11-03/that-time...

[Shivetya]

My enjoyment came from learning a new term "contango" [0] which set me off down the rabbit hole. This whole article is a joy from the oil futures to the coffee shop.

[0]https://www.investopedia.com/terms/c/contango.asp

[dls2016]

Goldman Sachs did that with aluminum.

https://www.nytimes.com/2013/07/21/business/a-shuffle-of-alu...