JPMorgan Hires Supertanker for Storage, Brokers Say

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Thursday, 04 June 2009

JPMorgan Chase & Co., the second- largest U.S. bank by deposits, hired a newly built supertanker to store heating oil off Malta, shipbrokers reported, in the company’s first such booking in at least five years.
The bank hired the Front Queen for nine months, according to daily reports from Oslo-based SeaLeague A/S and Athens-based Optima Shipbrokers Ltd. David Wells, a spokesman for JPMorgan in London, declined to comment.
JPMorgan, which has never hired an oil tanker based on data compiled by Bloomberg going back five years, follows companies including Citigroup Inc.’s Phibro LLC unit and BP Plc in hiring ships to store crude or oil products at sea. The firms are seeking to take advantage of higher prices later in the year.
“It’s opportunity-driven,” Sverre Bjorn Svenning, an analyst at Fearnley Consultants AS in Oslo, said by phone. “I doubt it’s going to be a permanent or new sort of trade.”
Heating oil for immediate delivery costs $555 a metric ton in northwest Europe and supplies for August are at $581.68, according to data compiled by Bloomberg.
Supertankers aren’t normally used to store heating oil because their tanks have to be scrubbed of crude oil first, Nikos Varvaropoulos, an official at Optima, said by phone yesterday. Newly built carriers don’t have that problem.
Conventional Tankers
The ships can hold about 2 million barrels of heating oil, more than three times the amount held by a more conventional Long Range 2 tanker, according to Riverlake Shipping SA, Switzerland’s largest shipbroker.
Benchmark supertanker rates plunged 87 percent from their peak in July as oil producers curbed supply and ship owners expanded the global fleet. The Paris-based International Energy Agency expects the first back-to-back drop in global annual oil demand since 1983.
Sliding rates spurred several traders to enquire about the same transaction as JPMorgan, Varvaropoulos said.
JPMorgan hired the Front Queen at $35,000 to $41,000 a day, according to the broker reports. The bank is also paying $1.6 million for the ship to sail from Singapore to Europe without a cargo, the brokers said. Long Range 2 tankers cost about $25,000 a day for storage, according to Riverlake Shipping.
Traders were already using smaller tankers to store record volumes of jet fuel and heating oil in Europe as on-shore tanks filled up, D/S Torm A/S, Europe’s biggest oil products shipping line, said April 3.
Inventories of heating oil at Amsterdam, Rotterdam and Antwerp stand at 2.7 million tons, the highest for at least two years, according to data from PJK International BV.
Jens Martin Jensen, chief executive officer of Frontline Management AS, which controls the Front Queen, declined to comment.
Source: Alaric Nightingale, Bloomberg