Oil-at-Sea Space for Storing Escalating to Six-Year High

By Finance

According to owners of supertankers, the need to keep oil on ships is increasing because Morgan Stanley and Evercore Partners Inc. have been expecting shipping rates to reach their highest point in six years. In the words of Frontline Ltd, Dynacom Tankers Management Ltd and Nippon Yusen Kaisha, NYK, (owners of 11% of the fleet) purchases are greatly exceeding their number as the global oil supply enlarges.

For example, the price of the Brent crude oil has increased sharply since June amongst signals that OPEC countries are not willing to deal with global glut that resulted of U.S. drillers and other producers. The later date delivery price of oil is too far above present cost and that market scheme is familiar as contango. It can be possible to derive gain from keeping freights and holding returns presently when it comes to the futures market.

According to Morgan Stanley analyst Fotis Giannakoulis, the situation is firming the market and making it elevate. If that market structure goes on expanding then it would be a real situation for the largest tankers to have profit of more than $100,000 a day. For example tankers that carry Middle East oil to Japan, using a standard route, made a profit of $83,853 a day yesterday in correspondence with the prices set by the Baltic Exchange in London. The profit raised above $100,000 a day on July 30, 2008 citing the Exchange’s information. An enlargement to that stage may not be lasting as the contango is not capable of keeping high for too long to move up storage.

The February Brent establishment has slipped 45 cents (0.9 percent) reaching $48.24 a barrel on the ICE Futures Europe exchange (headquartered in London) at 11:49 a.m. Singapore time. The agreement’s expiration is today. The more lively March future market has shown 39 cents lowering at $49.47.

According to the appraisals of Galbraiths Ltd. (shipbroker headquartered in London) around 58 million barrels of tanker potential has been reserved during the past weeks with storing options. In the words of Jonathan Chappell-a shipping analyst for Evercore in New York in a phone conversation, the more ships serve for storage and the more being removed of the trading vessels, the more it will be possible to have a profit of $100,000 a day. That is credible because of the floating storage. That is a trade deviating from the general rule. Using as a source the all three tanker companies, the need is usually to store for a minimum of six months. Out of the three companies-Nippon’s base is in Tokyo, Dynacom’s-in Glyfada (near Athens) and Frontline’s-in Hamilton (Bermuda).

According to E.A. Gibson Shipbrokers Ltd. in London, the price of the Brent crude oil for February has settled at about $7 less than that for August on the yesterday’s ICE Futures Europe exchange at 6 p.m, in London. A void of close to $6.50 is enough to provide for engaging the services of a ship and other expenses connected with the trade.

Giannakoulis further comments that the crude tanker fleet is able to keep the potential of 215 million barrels (10% of its overall capacity). The appraisal takes into consideration smaller vessels compared to the more massive crude carriers which are the largest ships. Around 5.5% of the VLCC fleet operated as floating storage in 2009, the last time the trade happened. Morgan Stanley has increased its average 2015 rate VLCC estimate to $45,000 a day on January 12th that is adding $10,000 to its past forecast, explaining the fact with the potential need for floating storage. A very steep contango is demanded for the rate to heighten as much as $100,000 a day. 

Source: Bloomberg