Some of the world’s largest oil traders have this week hired supertankers to store crude at sea, marking a milestone in the build-up of the global glut.
Trading firms including Vitol, Trafigura and energy major Shell have all booked crude tankers for up to 12 months, freight brokers and shipping sources told Reuters.
They said the flurry of long-term bookings was unusual and suggested traders could use the vessels to store excess crude at sea until prices rebound, repeating a popular 2009 trading gambit when prices last crashed.
The more than 50 percent fall in spot prices now allows traders to make money by storing the crude for delivery months down the line, when prices are expected to recover.
The price of Brent crude is now around $8 a barrel higher for delivery at the end of 2015, with its premium rising sharply over spot prices this week due to forecasts for a large surplus in the first half of this year, in a market structure known as contango.
Brent LCOc1 hit a 5 1/2-year low of $49.66 a barrel on Wednesday. It was trading around $51 a barrel on Thursday.
While major energy traders will often hire vessels for long periods as part of their day-to-day operations, industry sources said the fixtures booked in the last week had the option to hold oil in storage. Some could still be used for conventional oil transportation.
Vitol, the world’s largest independent oil trader, has booked the TI Oceania Ultra Large Crude Carrier, a 3 million barrel capacity mega-ship that is one of the biggest ocean going vessels in the world by dead weight tonnage (DWT).
The fixture lists, provided to Reuters by tanker brokers and oil traders, also showed Vitol has booked the 2 million barrel Maran Corona Very Large Crude Carrier (VLCC), while Swiss-based trader Trafigura has hired at least one VLCC, the Nave Synergy. Shell has taken two VLCCs, the Xin Run Yang and Xin Tong Yang, the lists showed.
Vitol, Trafigura and Shell all declined to comment.
LONGER BOOKINGS, CHEAPER RATES
The shipping lists indicate the trading firms have been able to hire the VLCCs for less than $40,000 a day – well below spot rates of between $60,000 to $70,000 a day. Average earnings reached $97,000 a day in December – the highest in years – and had so far put off many oil traders.
The lower rate has been possible to arrange, brokers said, by agreeing to take some older and less fuel-efficient vessels for up to 12 months.
“In 2009 freight rates were extremely low and owners were willing to put their ships out on charter in order to mitigate weak spot rates,” said Christian Waldegrave at leading tanker owner Teekay.
“In a rising freight market, such as we are in now, I would think that owners would be more hesitant to fix out their ships on time charter unless they felt strongly that rates were about to decline.”
Initial indications are around 12-15 million barrels of floating storage have been booked so far. In 2009 at least 100 million barrels of oil ended up being stored at sea.
Shipping sources said more oil traders have also been making enquiries in the past week.
Analysts at JBC Energy in Vienna said floating storage, while a sign of an oversupplied market, may provide some temporary support for oil prices in the coming weeks now that traders were able to move crude on to tankers.
“This will not only release some pressure on front-end prices, but also allow for the physical market to clear somewhat,” JBC Energy said in a note.
“The physical market could also turn temporarily supportive over the coming months thanks to the balancing effect of floating storage.”
By JONATHAN SAUL, CLAIRE MILHENCH AND DAVID SHEPPARD (C) Reuters 2014.