VLCCs called into service for crude storage

Very large crude carriers (VLCCs) are being called into service to store crude as oil prices continue to fall. A range of trading and oil companies have expressed an interest in taking ships on time charter for at least one year, with a view to buying oil at prompt prices and selling it forward at higher prices.

Companies identified in shipping markets as showing an interest in VLCCs for storage include BP, Shell, US independents Core Petroleum and Noble Energy, Lukoil's trading arm Litasco, and trading companies Vitol and Koch.

The Maran Corona and the C Prosperity have both fixed on one-year time charter with an option for an additional year, to Vitol and Koch respectively in the past two days. Koch was reported fixing and failing the Xin Run Yang on a one-year time charter contract, with the ship then heard fixed on the same basis to Shell. None of the ships is confirmed as destined for storage, shipbrokers have registered a substantial upturn in interest in ships for storage and assume the recent round of activity is connected, given the current steep contango structure — prompt prices at discounts to prices for forward deliveries — in oil prices.

High spot rates in the VLCC market for Mideast Gulf-east cargoes mean owners want time charter rates in the $37,000-$40,000/day range for a one year contract, as their current time charter equivalent earnings on a daily basis are close to $70,000/day, and even demurrage rates — where a ship is delayed and the owner receives compensation from the charterer — are around $60,000/day for Mideast Gulf-east voyages.

Spot rates are inflated by seasonal factors and based on last year's performance will ease off as early as late January, so owners' calculations for one-year time charter factor in market expectations of how spot rates will behave over the year ahead.

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