* London the venue for annual oil industry gatherings
* Storage plays, price swings offer big profits
By Dmitry Zhdannikov
LONDON, Feb 8 (Reuters) - The oil price crash has meantslashed budgets, staff layoffs and mothballed projects for bigproducers, but oil traders will celebrate their best market foryears this week.
As hundreds of dealers flock to London for the annualInternational Petroleum Week, cocktail circuit talk will be ofthe chance of huge returns after years of low volatility.
For them the market presents near perfect conditions,mimicking the year after the 2008 oil crash when some booked their best profits in history. Then, those with the know-how andstorage were able to lock-up millions of barrels of crude untilprices eventually recovered.
The bumper profits on offer are reflected in the long listof IP Week parties, with no firms cancelling their events thisyear, even as they make cuts in other areas.
"I haven't been more positive about trading conditions since2009," said Torbjorn Tornqvist, head of trading house Gunvor,one of the world's largest independent oil dealers, toldReuters.
"I see contango in the market, I see the cost of fundinggoing down, I see the dollar strengthening, I see strongrefining margins."
Contango - industry jargon for when prices for deliverymonths in the future are higher than in the spot market - is keyto much of the trading boom.
Any trader with access to storage, on land or at sea, canbuy a barrel of oil today for $58 and sell it 10 monthsdown the line for $65, based on current prices.
Volatility has also jumped in recent weeks. After posting a60 percent crash from above $115 a barrel June to near $45 inJanuary, Brent crude oil has rallied by as much as 30 percent,touching $59 a barrel this week.
Prices have swung wildly, gaining as much as 9 percent inone session only to fall 5 percent the next, as traders wrestleover whether a price floor has really been hit, even as supplieslook to continue outstripping demand in the first half of thisyear.
RAZOR'S EDGE
Gunvor and its rivals Glencore, Vitol, Mercuria andTrafigura have seen profits falling in the past five yearsversus the peak of 2009, although the amount of oil, coal, andgas they move has grown rapidly.
While revenues can amount to more than $300 billion a yearfor the biggest trader Vitol, profit-margins are razor thin,shrinking to less than 1 percent even in the better years.
"Whoever has storage this year will win," the head ofMercuria, Marco Dunand, told Reuters last month. "Notnecessarily traders - but oil companies too and even refiners."
Oil majors BP and Shell, which have thebiggest trading operations among international energy firms,have both reported improved results from trading divisions overthe past week as part of their fourth quarter results.
"Since 2009, when a lot of oil was stored onshore andoffshore, a lot of new storage capacity has been built and a lotof refineries were turned into storage," said Dunand.
Dunand estimates that by the end of the first quarter of2015 some 400 million barrels of oil worth $22 billion will bestored onshore and offshore as global production volumes arestill massively exceeding demand.
However, as storage is being gradually filled in Europe moreand more barrels will be sent to the United States where storagecapacity is still abundant, meaning potentially record profitsfor traders with a large presence there.
"There is a lot of spare capacity in the U.S. and somegeographical rebalancing still remains to be done," said Dunand. (Additional reporting by David Sheppard, editing by WilliamHardy)
