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Monday, April 06, 2009

Crude Floating Storage Seen Up On Contango, Freight

Monday, 06 April 2009

A widening contango in crude oil and falling freight rates are expected to trigger more floating storage of crude oil, and negotiations for at least five supertankers are underway, traders and shipping brokers said. Rising floating storage, partly due to sluggish global demand, may further hinder the efforts by the Organization of Petroleum Exporting Countries to stabilize crude oil prices, London-based traders added.
Dutch trading house Vitol Holding B.V. plans to charter three very large crude carriers - La Prudencia, Birdie and Lucky Trader - to store crude oil in the U.S. Gulf of Mexico, they said.
All three VLCCs have an option of 30-90 days of storage at a cost of $45,000 a day, they said.
Meanwhile, Royal Dutch Shell PLC (RDSA) is in discussion to charter the TI Europe with an option of two to four months of storage in West Africa at a cost of $64,000 a day, while Clearlake, the shipping arm of Swiss-based Gunvor Group, plans to book the VLCC La Madrina to load crude oil from Skaw, a port in Denmark, to the U.S. Gulf with an option of 30-120 days of storage at a cost of $45,000 a day, shipping brokers said.
But it remains to be seen how many deals will be fixed eventually, they said.
A VLCC typically holds 2 million barrels of crude oil, but the TI Europe, one of the largest oil tankers in the world, is an ultra large crude carrier and is able to carry 3.2 million barrels of crude oil.
The contango in crude futures - where near-term contracts are priced cheaper than those further into the future - narrowed slightly in February, leading to a wave of destocking. But this didn't last too long. From mid-March, with contango widening again and freight rates continuing to fall, storing extra barrels in offshore tankers has become economic again.
At 1245 GMT, the front-month May light, sweet crude futures on the New York Mercantile Exchange traded $1.96 a barrel lower to the June contract, compared with $1.64 a barrel a week ago.
The downtrend in VLCC freight rates, stemming from OPEC cuts, has yet to show any sign of recovering, shipping brokers said.
The freight rate for the benchmark route from the Middle East to Japan has fallen to Worldscale 33 from around W47 a month ago, according to shipping brokers.
Source: Dow Jones