Houston, 27 June (Argus) — A very large crude carrier (VLCC) has been preliminary booked for crude storage in the US Gulf of Mexico.
The Frontline ship Saga Unity – which can load around 2mn bl – has been chartered by Statoil for 30-90 days storage at $32,000/d, according to shipping sources. This equates to a freight storage cost of around 48¢/bl per month.
Clearlake (Gunvor) and Koch are also showing interest in booking Suezmaxes – which can load about 1mn bl – for storage in the US Gulf, but it was not known if this was for crude storage, a shipbroker said. ST Shipping (Glencore) booked a Suezmax for 30-45 days storage in the Gulf earlier in June, but this was not for crude, the broker said. The rate had been pegged around $16,000/d.
It is unclear whether this interest in storage has been bolstered by the IEA's intention to release 60mn b/d of oil from its emergency stocks to make up for the loss of Libyan crude. Half of that release is slated to be light, sweet crude from the US Strategic Petroleum Reserve (SPR) oil storage caverns along the Gulf coast.
One broker said some enquiries for floating storage at the end of last week in the wake of the IEA's announcement were stymied by the expectation that the crude would not be released until August. He also noted that sometimes oil companies do have requirements for floating storage that are due to internal storage needs, rather than related to oil market moves.
The contango structure of the oil futures market – where the front month contract trades at a discount to forward month contracts – can allow the use of floating storage at sea if freight costs are low enough. And a massive injection of fleet supply in the past few years has helped slash freight rates this year.
But the present contango appears too narrow to launch wide scale interest in storage based on inter-month spread values. The front month West Texas Intermediate (WTI) crude contract for August, which trades on Nymex, settled today at a 56¢/bl discount to the September contract and a $1.09/bl discount to the October contract.
Citibank oil analyst Tim Evans said that contango level does not give a spread structure to fully cover the cost of floating storage, because there are additional costs for financing and insurance. Several factors have to line up to make the floating storage trade work, he said, including physical availability of the crude and whether a distortion that creates the contango is a futures market event rather than a physical event.
Periodically there are moments in the WTI contract when a so-called “super contango” emerges, but this can be due to an imbalance in the futures market when positions are rolled from month to month or there is outright liquidation of positions at the end of a contract month. Evans noted that the last time this occurred was February when WTI's widest settlement was at a $3.92/bl discount.
The tanker market did see interest in floating storage in January 2011. Ships were provisionally booked but canceled after the spreads between the contract months narrowed and squashed the economic viability of the deal. More recently, in early June there was brief interest in crude storage in the US Gulf, prior to the announcement from the IEA on 23 June of an oil release from emergency stocks.
Oil trader Koch booked the British Purpose for 30-60 days of crude storage at $22,000/d, while the British Pride, a BP owned ship, was already being used for crude storage in the US Gulf. Shipbrokers said there were possibly a couple more ships storing in the Gulf that had likely been on long-tem charter, but that these were difficult to track.
While tankers have often been used to store crude or oil products, the market became more focused on it following a massive storage floating play by oil traders and companies in 2009. At its peak, over 100mn bl of crude was stored on more than 50 VLCCs. This was prompted by a glut of crude as oil demand slumped after the 2008 financial crisis and combined with an oil contango that moved to historically wide levels – the front month contract trading at an $8/bl discount – and a collapse in freight rates.
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