Oil traders once again believe it’s worth heading out to sea. A Bloomberg survey of 6 traders and analysts indicates that the market structure for Brent crude, the benchmark for more than half the world’s oil, now makes it viable to store supplies in a ship to potentially lock in profits on a sale six months later, according to report. During the current month, cargoes for later delivery have averaged $2.78/bbl higher than prompt shipments, more than covering the cost to hire a tanker for storage for half a year.
With front-month futures sliding since early June and tumbling into a bear market this month amid swelling onshore stockpiles, the market structure has changed while freight has also become cheaper.
Nevyn Nah, a Singapore-based analyst at industry consultant Energy Aspects Ltd., said that the demand from refineries looks set to pick up towards the end of the year as more units return from peak maintenance season. It is not a bad time for traders to start thinking about floating certain grades of oil as the current Brent structure and freight is helping their cause.
The traders can potentially benefit from holding on to such grades at seas most varieties of crude from Africa, North Sea, and the Asia Pacific region are priced off the Dated Brent. Storing crude on tankers would also involve costs including that for ship fuel, insurance, and finance.
Den Syahril, a Singapore-based analyst at industry consultant FGE, observed that the sentiment in the VLCC sector is weak due to lower chartering demand from West Africa and to a lesser extent, the Middle East. The wave of new-build tonnage hitting the market this year has added to the vessel surplus and pressured rates lower.
As new ships enter the market and the shrinking availability of traditional storage options, there is an expected drop in freight rates. Industry consultant JBC Energy GmbH said that this trend may be prompting creative approaches to holding on to oil. The deepening contango has made floating storage relatively attractive for some companies.
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Source: World Oil
