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Tuesday, June 23, 2009

Contango decline hits VLCC market

Tuesday, 23 June 2009

The very large crude carriers (VLCC) market is currently witnessing a slump as selling oil in 'future' becomes less profitable, suggests a monthly report by the Organisation of the Petroleum Exporting Countries (Opec) About 19 VLCCs that had earlier found use as floating storage for oil for the past four months returned to the market in May, the organisation's June report said.
"The weakest sector in May was once again the VLCC sector, which is apparently the sector that suffers most from the continuing global economic crisis and Opec production adjustments. High tonnage availability of the VLCC sector in May was enhanced by the return to the market of as many as 20 vessels that were tied up in storage operations," said the report.
Estimates put the number of VLCCs that were still tied up in storage operations at the end of the month at about 34 vessels, down from 53 at the end of April, representing about seven per cent of the global VLCC fleet.
The report comes close on the heels of a report from Energy Intelligence that has said about 11 million barrels of oil that had been stored in VLCCs has returned to the market. While an estimated 83 million barrels of oil were being stored on VLCCs in the first quarter of this year, the number has come down to 72 million barrels, it said.
Many more millions of barrels are to be released by the end of June, the Energy Intelligence analysts asserted.
In contrast, the clean tanker market that is involved in transfer of crude and refined products instead of storage, witnessed a relatively good month in May compared to the previous four months in 2009, Opec said. "The month ended with gains in all other vessel categories with the clean tanker market performing even better. In May, storing at sea lost momentum towards the end of the month with the narrowing of the contango structure in crude oil futures," said Opec.
A contango, which is the difference between future and spot prices, has sublimed now with the difference in prices of crude meant for delivery now and a few months ahead being reduced to a range of 50 cents and $1. The different had shot up to $8 in February this year.
Taking the top vessel categories into consideration, average spot freight rates for crude oil tankers were five per cent higher in May compared to the previous month, yet 69 per cent lower compared to the same month a year earlier, said Opec. "Once again the VLCC sector was the weakest in May, declining by a further five per cent from already very low rates the previous month," it said.
It is estimated that about 28 new VLCCs entered the market since the beginning of the year with very few getting out, said Opec.