Executive summary

Storage turns time into money. Holding a commodity costs carry — financing, storage and insurance — but it can earn the contango spread and an option on future scarcity. When the forward curve pays more than your cost of carry, storage stops being a cost of doing business and becomes a trade in its own right.

In plain English

Cost of carry = interest on the cash tied up in the cargo + tank or warehouse rent + insurance + handling losses. Compare that to what the forward curve offers. If six-month contango is $6 and six-month carry is $4, storing locks roughly $2 a unit. If the curve is flat or backwardated, storage just bleeds money.

Tank / warehouse economics

Throughput and rental terms (fixed + variable) that set your storage cost per unit per month.

Optionality value

Even at break-even carry, holding inventory is an option to sell into a future price spike.

Floating storage

Using chartered vessels as temporary tanks when onshore storage is full — expensive, viable only in steep contango.

Why traders care

Storage is how a trader monetises a contango curve and holds optionality on scarcity. But it consumes two scarce resources — working capital and credit lines — and exposes the holder to price risk unless the position is hedged. The decision to store is therefore a financing and risk decision as much as a logistics one.

Operator connection

Booking tank capacity, managing tank heels, scheduling injections and withdrawals, and — at the extreme — running a vessel as floating storage (and paying its demurrage) is the operator executing the storage trade. Storage economics is where the operator's logistics skill becomes a direct P&L lever.

Further reading

• CME Group — 'What is Contango and Backwardation' (cost of carry and convenience yield).
• Kaldor / Working — the classic 'theory of storage' (convenience yield) literature.
• U.S. EIA — coverage of crude and product storage levels and floating storage.