As Reuters reports, "global oil traders are likely to store crude in tankers next year, as a widening contango makes large-scale storage at sea profitable for the first time since the financial crisis more than five years ago, industry sources said."
Just like in 2009, "with Brent for prompt delivery dropping sharply versus later contracts in the past week, traders are increasingly requesting to lease vessels for storage."
The spread between buying now and selling later means that "the current contango on the ICE Brent market would already be sufficient to make floating storage viable based on average 2014 freight rates," JBC Energy said in a note. Analysts at JBC Energy expect 30-60 million barrels of oil to be stored offshore worldwide in the first six months of 2015.
And while it may not be anywhere close to the massive curve dislocation from early 2009, Brent for February delivery is currently close to $3.95 cheaper than for delivery five months later, the widest gap since 2010. And yet, so far in 2014 "only a few tankers have stored oil at sea as the discount for the front month crude futures has been insufficient to finance chartering. Ship owners have also been resisting calls to lease out vessels for oil storage given a seasonal hike in freight rates."
However, as day rates drop, ship owners will be compelled to lock in deals to allow charterers to store crude for months, industry sources said.
"Moving into the first quarter of 2015, freight rates are likely to correct downwards, opening up floating storage opportunities," JBC Energy said.
The problem is that with oversupply on deck (pun not intended) suddenly the world may find it does not have enough tankers!
The International Energy Agency expects 300 million barrels of crude to be put into storage globally, including onshore and offshore, in the first half of 2015, which could "
bump against storage capacity limits" in OECD countries.
Which paradoxically means that all those trounced tanker stocks may suddenly get a strong tail wind as a result
not of actual end-customer demand, but as specs try to lock in a risk-free spread on the contango and rent tankers for sub-1 year charters, until the physical delivery date comes.
again?
