What the Rise in Floating Storage Means for Crude Tankers
Floating storage appears to have risen in the past few days. Many factors have contributed to a rise in floating storage, including low demand for VLLCs (very large crude carriers), rising oil production, weakness in crude oil prices, and contango.
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The number of laden or idle VLCCs in the past two weeks has risen 30% over the past month. Meanwhile, crude oil prices tumbled in June (DBO), dropping to as low as $45 per barrel. The fall in oil prices has widened the contango structure.
Contango is a situation in which the spot price of a commodity is lower than its futures price. Offshore storage becomes attractive when contango trade becomes possible. This allows traders to lock in profits by buying crude oil now and selling it forward for later delivery—as long as the costs of storage are low enough.
According to a Weber Weekly Report, a discount of $2 per barrel to the spot Brent price yields a potential profit of ~$3.15 per barrel for one month.
VLLCs for offshore storage
Market intelligence company Kepler estimates that crude oil stored in supertankers had reached 111.9 MMbbls in early June 2017—the highest level so far in 2017. Offshore storage has increased mainly in Singapore, the North Sea, and Iran. So far in 2017, crude oil stored in oil tankers has risen by 23% in Singapore and 32% in the North Sea.
In terms of supply and demand, more VLCCs engaged in storage helps to reduce the oversupply situation. More demand for offshore storage will prove positive for crude tanker companies like Teekay Tankers (TNK), DHT Holding (DHT), Euronav (EURN), Tsakos Energy Navigation (TNP), and Frontline (FRO).