Reuters

(Reuters)

BP Unwinds Oil Storage Play

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Oil major BP said it will gradually sell throughout 2015 more than $1.25 billion of oil it had stored earlier this year to seize on a futures market structure to boost profit.

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Traders including BP bought and stored oil throughout late 2014 and early 2015 after an oil price collapse as prompt prices dropped below those for further into the future, a market structure known as contango.

Traders have been profiting from the contango by storing crude in the hope of reselling it at a profit at a later date or by simply locking gains via paper trading.

Chief Financial Officer Brian Gilvary said BP's trading unit had performed much better than in an average quarter, likening the quarter to a strong trading performance in early 2009 when crude prices last crashed.

"The profit we booked in one quarter for contango is relatively modest, in the tens of millions, certainly not the hundreds," BP's Chief Financial Officer Brian Gilvary said on a conference call.

BP bought and stored more than $1.25 billion worth of oil, the equivalent of around 23 million barrels, during the first three months of the year, the company said.

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BP said it will gradually unwind the stocks as the market structure narrowed.

"We expect the working capital inventory build to unwind over the rest of the year," a company spokesman said.

Although the volumes are large, they are still below those accumulated by some of the world's biggest trading houses during the first quarter. Since March the market structure has narrowed significantly, making a repeat of the storage play unlikely in the second quarter.

BP and Total both reported higher than expected profits on Tuesday thanks to steep increases in profits from refining, showing the resilience of global oil firms in the face of slumping oil prices.

Many trading houses, such as Glencore and Trafigura[TRAFGF.UL], have said since March that although inland or onshore crude storage was still profitable, offshore storage at sea was probably out of question due to higher costs associated with shipping fees traders have to pay to tanker owners.

(Writing by Ron Bousso, additional reporting by Karolin Schaps and Dmitry Zhdannikov, editing by David Evans)