Commodities: storage, rollover and the cost of time 

 

A barrel has to sit somewhere and somebody pays rent on the tank. That rent reaches a retail account through a mechanism no charges page mentions. 

Every price on the screen has a shed behind it 

Every commodity quote you deal on refers to a physical thing in a specific place, under a roof somebody owns. Crude waits in tank farms at a terminal. Wheat sits in a silo being dried and watched for pests. All of it is billed by the week, and none of it pauses when the price does nothing. 

A retail account goes nowhere near that machinery, which is where the confusion starts. Exposure arrives as a line on a phone with no address attached, so the storage bill looks like the problem of somebody in a hi-vis jacket. It reaches you through the gap between owning the material now and owning it later, and the gap is what you deal on. 

Commodity markets trade in dated months. A December contract and a March contract carry different prices and are different instruments, because they are promises about different weeks. The spot-looking product on a retail platform sits on that structure, since whoever hedges it works in a market where every contract has an end date in its specification. 

So a position you hold for a year is not one position, it is a dozen short ones stitched end to end. Each contract reaches its date and gets replaced by the one behind it. That replacement is the roll. It runs to a schedule the exchange set long before you arrived, and it has a price. 

Two shapes, and only one of them is about storage 

When later months cost more than nearer ones, the market is charging for the shed: space, insurance, spoilage, and money tied up in stock that earns nothing while it waits. The trade calls that contango, and it is what you would expect of anything expensive to keep. Gold behaves this way routinely, since nobody runs short of gold in a hurry. 

The other shape teaches you more. Sometimes far months are cheaper, which reads as an error until you remember who the buyers are. 

A refinery without crude shuts down. When having the material this week beats everything saved by not storing it, the near contract gets bid above the far one. Backwardation is scarcity outbidding arithmetic. 

The roll turns a shape into a rate 

A slope is two prices and a subtraction. The roll converts it into something that repeats. Closing the expiring contract and opening the next means selling the cheaper and buying the dearer whenever the curve slopes up, and the reverse whenever it slopes down. Nobody has been charged a penny. The account has re-entered at a different level. 

Month after month those slices accumulate into a figure capable of settling the whole trade. Two people can take the same view on the same commodity over the same nine months, one while the curve leans up and one while it leans down, and finish on opposite sides of profitable. Direction was the part they thought they were betting on. 

What the shed costs depends on what is inside it 

The slope is less a market opinion than an accounting fact about a physical problem, which is why it varies by commodity in ways you can reason out from the goods. Anything cheap to keep and never urgently wanted leans one way. Anything perishable, seasonal or occasionally desperate refuses to. 

What is being held	What keeping it costs	What can outbid that cost	How the curve tends to lean
Gold in a vault	Space, insurance, money idle in metal	Very little, nobody runs short	Upward, with some consistency
Crude oil in a tank farm	Tankage, freight, insurance	A refinery that cannot get a cargo	Either way, and it switches
Natural gas in storage	Cavern capacity, compression, losses	A cold fortnight with stores low	Seasonal, on the calendar
Wheat in a silo	Drying, pest control, spoilage	A harvest that came in short	Upward until the new crop lands
Live cattle	Feed, water, vets, and they keep growing	The animal is not the animal you bought	No clean rule anywhere
Electricity	It cannot usefully be stored at all	Nothing there to outbid	No carry relation to lean on

The physical carry behind six commodities: what keeping each one costs, what can outbid that cost, and which way the curve usually leans. 

The last row breaks the mechanism deliberately. Electricity cannot be stored in any quantity that matters, so nobody pays rent on it. 

Remove the storage problem and the shape stops obeying the storage story. 

Two charts of the same barrel, and neither one is wrong 

The price read out in a news bulletin belongs to a specific dated contract, usually the nearest one. Your platform’s chart of the same commodity runs back for years, and no single contract lasts that long, so the line has been stitched together from a succession of them. Where the joins fall, and what gets done about the step between a departing contract and its replacement, is a decision taken by whoever built the chart. 

The joins are exactly where the accumulated slices live, and a chart is built to hide them. Adjust the history so the line runs smooth, and every level before the last join has been shifted away from what anybody actually paid. Leave the steps in, and the picture is honest about the joins and useless for measuring a return across them. 

Either way, the change you read off a five-year chart is not the change a five-year holder banked, and that difference is the subject of this article, plotted in a form that removes it. 

There is no line on the charges page for any of this 

Look at what a platform’s charges page contains. Spread. Commission on some account types. Overnight financing. Currency conversion. Withdrawal and inactivity fees. Every item there is an amount subtracted from your money, which is why it can be listed. The roll subtracts nothing. Providers commonly post a cash adjustment and re-price the position so nothing lurches, which leaves no charge to disclose. 

That is where a method built on funded accounts runs out of road. Everything else in this business leaves something behind that an account holder paying attention can copy into a notebook. A roll leaves nothing to copy. That limit is worth stating plainly, because The Investors Centre opens and funds live accounts with its own money to test UK trading platforms rather than compiling rankings from providers’ published fee schedules, and a roll is one of the few things an account of that kind cannot record. 

There is an exception, and it sits on the fund side rather than the trading side. An exchange-traded commodity product holding futures has to roll them as well, and being a fund it must explain the policy in writing: which month it holds, when it moves along, and a warning that the curve can wear the holding down while the commodity goes nowhere at all. 

Nobody produces that document for a retail derivative account, because the obligation attaches to running money for other people rather than to selling them exposure. The clearest published account of the machinery inside your position therefore lives in the prospectus of something you did not buy. Read one anyway. 

Count the rolls between now and the exit you have in mind 

The habit that falls out of this is a small one. Before opening a commodity position, establish which month your provider references and what happens when it ends, then count how many endings sit between today and the date you expect to be finished. Three rolls in a market leaning upward is three slices, all of them visible in advance. 

The physical trade has never needed telling any of this. Everybody in it pays rent on a tank, a silo or a shed, and time turns up on their statements with a price beside it. The screen is the only place in the chain where holding something looks free, and it looks that way because the bill arrives as a slightly worse level each time the calendar turns.