24 January 2015 – Oil traders have booked up to 20 tankers to store an estimated 40 million barrels of crude at sea, rising from 25 million barrels last week, as they soak up a stocks glut in anticipation of future profits, shipping and oil market sources said.
The more than 50 percent fall in spot prices since June enables traders to make money by storing the crude for delivery months down the line, when prices are expected to recover.
The sources said the volume of oil earmarked for floating storage had risen in recent days. Some of the tankers could nonetheless still be used for conventional oil transportation.
“Floating storage remains a major focus in the tanker market as charterers have been fairly active in securing VLCCs (very large crude carriers) on time charters, with options to use the vessels as floating storage,” said Omar Nokta of Clarkson Capital Markets.
In the past two weeks, trading firms including Trafigura , Vitol, Gunvor, Koch and energy company Shell (LSE: RDSB.L – news) have started booking oil tankers for floating storage for up to 12 months, according to industry sources and freight bookings seen by Reuters.
This trading strategy was last used in 2009 when prices slumped and led to more than 100 million barrels of oil being parked on tankers at sea before stocks were sold off.
Industry sources say rates to hire vessels for longer periods — known as time charters — have risen by a few thousand dollars a day in the past week to over $40,000 a day, and are quoted at more than double the level at the same time last year.
“On average the latest one-year charters have been done around the $38,000/day to $40,000/day level though our Clarksons team now assesses one-year charters at a rather hefty $52,500/day. This adds roughly $0.20 per barrel to the monthly break-even requirement, which could impact interest for more floating storage,” Nokta said.
Taking into account vessel hire and other expenses including bunker fuel and insurance, overall monthly floating storage costs are estimated anywhere in the region of $1.5 million to $1.8 million per tanker.
Oil traders still stand to make a profit, however, as spot prices for crude are trading below future contracts, in a market structure known as contango. The December 2015 Brent contract was trading around $57.40 on Wednesday, $8 a barrel above the spot price.
“Floating storage is the cherry on the cake for the tanker market right now, which was already strengthening before this trend started,” said Georgi Slavov, a resource analyst at Marex Spectron in London.
“But the amount of oil now being stored at sea is adding some froth to tanker rates.”