Storage agreement with a tank farm

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Reference no: EM131449964

You want to store gasoline in the Gulf Coast as your POV is that gasoline will be worth more next summer than it is currently in February 2017. To execute on this trade, you enter into a storage agreement with a tank farm in Houston to store 500,000 barrels of product from February 1, 2017 thru October 31, 2017 at a cost of $1MM per month.

- In January 2017, you entered into a forward physical contract to purchase 500,000 barrels of gasoline from ABC trading company to be delivered into storage on February 1, 2017 at a cost of $1.50 per gallon (42 gallons per barrel).

- Since the product has not been sold yet, you enter into an October 2017 RBOB futures contract to sell 500 lots of RBOB futures at $2.10 per gallon.

- In August 2017, you enter into a physical forward sales contract to sell 500,000 barrels of gasoline for $2.20 per gallon in October 2017.

- Since product has now been sold you buy 500 lots of October 2017 RBOB futures at $2.40 per gallon.

Reference no: EM131449964

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