Sunday, January 11, 2015

Crude Being Stored at Sea in Anticipation of the Eventual End of the Oil Glut

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.

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.

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.

1 comment:

  1. While it's entirely possible that the likes of Vitol, Trafigura and Shell have begun to speculate in the crude market, it isn't likely. A stronger possibility is that the relentless push downward in front month crude has temporarily outrun the deferred months to a degree that trading the carry (buying physical supplies and selling deferred futures or swaps) can be done for less than the cost of tanker storage. It's been awhile since I've been in the crude market but, with February 2016 trading at more than $8 premium to the February 2015, this scenario seems likely.