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Monday, August 10, 2009

Oil contango boosts crude storage at sea-sources

Monday, 10 August 2009

The amount of crude oil being stored at sea has risen sharply over the last two weeks, particularly in the U.S. Gulf, due to a price incentive for oil companies to hold stocks on board vessels, traders and analysts said. Several industry sources estimated that there were 70 million barrels of oil being stored at sea. While the estimates vary from around 60 million to 100 million barrels, most sources agree offshore storage levels rose by around 10 million barrels in the last two weeks alone.
A Very Large Crude Carrier (VLCC) can store up to two million barrels of crude oil.
"We have seen renewed interest in chartering VLCCs for storing crude oil of late, which we believe has been stimulated by the widening of the contango in WTI futures," said Simon Chattrabhuti, head of tanker research with ICAP Shipping in London.
An oil price structure known as a contango has encouraged oil companies to store crude oil in tankers anchored at sea this year with a view to selling it for a profit later.
The contango price structure -- which occurs when oil for prompt delivery is discounted to oil for delivery further in the future -- has narrowed over the last few weeks for North Sea crudes, but remains attractive for many U.S. grades, making it most profitable to store oil near the U.S. Gulf Coast.
West Texas Intermediate crude futures CLc1 for delivery next month have been trading at around a $2.00 a barrel discount to barrels for delivery in two months, more than covering the cost of around $1.00 a month of storing a barrel offshore in the United States.
"The storage total is probably close to 70 million barrels, with the majority of the rise is in the U.S. Gulf," said George Los, an analyst with U.S. shipbrokers C.R. Weber.
Offshore storage dipped to 60 million barrels in late July, as the contango weakened, Los said. The recent levels of floating crude stocks are still well below peaks of more than 100 million barrels in April, he added.
Another U.S. shipbroker, who requested anonymity, counted five new VLCC storage charters over the past nine days alone. They included European trader Trafigura, Russian trader Gunvor and U.S. oil major ConocoPhillip charters, all for crude oil storage off the U.S. Gulf Coast. She estimated 70 million barrels currently at sea.
Among the other players currently storing contango crude are U.S. trader Koch, major Royal Dutch Shell and Swiss trader Vitol, the broker said.
ICAP Shipping estimated 29 VLCCs were storing crude globally, rising from 24 VLCCs two weeks ago. It estimated that 10 VLCCs were holding crude in the U.S. Gulf, 10 off the coast of Northwest Europe, seven off West Africa, one in the Mediterranean and one in the Far East.
Frontline, the world's biggest independent oil tanker shipping group, told Reuters on Thursday around 50 VLCCs were storing crude oil, particularly in the U.S. Gulf and off Europe.
A crude oil trader at a large independent trading house estimated between 70 million and 100 million barrels of crude were stored globally.
Swelling onshore inventories in the U.S. may also be pushing more crude offshore, shipping sources said. Stock levels at Cushing, Oklahoma, the world's largest onshore commercial oil storage hub, have risen in six consecutive weeks.
Source: Reuters